Unsurprisingly, the oil majors, Shell and BP, reported sharp increases in profits. Centrica, which owns British Gas, was not so fortunate. Hit by the rising cost of its principal product, profits were down by a fifth, doubtless the reason for the hefty increase in gas prices announced at the time the figures were published.
As for the banks, Lloyds TSB fared less well than expected while HBOS, still the UK’s biggest mortgage lender, did better than the worst fears. The 70 per cent drop in Lloyds’ numbers contrasted poorly with a mere halving of HBOS’s profits.
Overall, profits seem to be holding up rather better than one might have expected. Consumers are continuing to spend, but with greater care. Next, for example, reported a levelling out of the sales decline it had reported for the first quarter, even though caution was expressed for the second half. But for them, as for other retailers, sales over the internet continued to grow.
All this, coupled with bottom-fishing by professional investors, leads me to the conclusion that there is probably more danger in being out of markets than in being in them. Plenty of reports have been published that demonstrate how difficult market timing can be. Miss the best months for performance and your long-term record will be shot to pieces.
The trouble is that the indices present such a distorted picture these days. Back at the beginning of the new millennium, many managers were given a problem because Vodafone had become the biggest company in the market, accounting for around 13 per cent of the value of the FTSE 100 index. With many funds restricted to a maximum of 10 per cent in a single share, there was little option but to underweight the telecoms giant – which in the end turned out to be no bad thing.
Similarly, we have seen the growth of banks wane as an influence on index performance, to be replaced by resource stocks. Making these calls accurately would have delivered stellar performance but the evidence suggests few managers succeeded in second-guessing the changes that took place.
In some sectors – income being a prime example – the only way to avoid being slaughtered in the tables has been to ignore the obvious plays and go for a style of momentum investing.
There are signs this is beginning to change. Value investing criteria have taken the edge over growth measures in the last few weeks, having trailed for some time. But sentiment is fragile. Some downbeat statistics from the US unsettled investors last week, with jobless numbers rising more than expected and GDP expectations downgraded, and turned a day buoyed by better than expected corporate news into a negative return.
Little wonder that investors are encouraged to include more esoteric asset classes, with commodity- linked ETFs as an example. I do not dismiss this approach to asset diversification but I wonder whether the end-investor understands the dynamics that will control performance. There remains no guarantee these will deliver to expectations any more than traditional investments.
My forays into private equity and commercial property – both made some years ago – gave me a brief and transitory profit and currently look seriously wealth-damaging. A more recent venture into distressed debt is far too new to assess but I am not holding my breath. Simple is good in this business. I have no personal evidence that straying from the tried and tested does you any favours. This is a topic I need to revisit.
Brian Tora (firstname.lastname@example.org) is principal of the Tora Partnership