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Survival of the cult

Brian Tora Tora’s Investment View

As I started thinking about what aspect of the investment world to cover this week, it seemed as though yet again I would have to return to the cult of the equity.

It is not that I am bereft of other ideas. It is just that so much has crossed my desk concerning the short – and long – term direction of the share market that this debate needs to continue.

Perhaps this week, the title should be: Cult of the Equity III – just when you thought it was safe to go back into the market.

The Cofunds quarterly Platform conference, held last week in Knutsford, had as its title, Equities – the route to recovery? Note the question mark.

After such a strong bounce since last March, I would not have been surprised to hear some speakers express short-term caution.

The overall tone was bullish, though, even if HSBC’s Guy Morrell took the opportunity to extol the virtues of investment in commercial property.

Indeed, commercial property does seem to be developing quite a following again. Guy, who heads HSBC’s multi-manager operation, made the point that the slump had been all too predictable and that even now it was important to be careful which fund to pick.

But with a number of investment houses pushing their property offering, I cannot help but wonder if they are simply trying to hold on to investors’ money being released from bond funds. This is worthy of revisiting.

But to return to equities, Mark Pignatelli – who runs European funds for Smith & Williamson – was positively euphoric over the prospects for equity markets.

Michael Fox, head of UK equities at The Co-Operative Asset Management, was no less enthusiastic, even if he did describe himself as a child of the bear market.

And Alastair Mundy of Investec said that even for a contrarian like him, there were opportunities around.

Of course, I realise that these were all managers talking their own book. Naturally, you cannot expect them to tell you the market in which they were investing was rubbish and you should sell but several of the speakers, such as Aidan Kearney of Aberdeen Asset Management, ran multi-manager operations and could choose between a wide range of asset classes.

Even Axa’s Richard Marwood runs a stable of funds where equities are merely a component – and not always an important one.

The message they all endeavoured to get across was that we had survived. Equity markets had travelled through a once-in-a-generation period of turmoil and had recovered. While shares had, indeed, rebounded, overall, we remained below levels attained a decade ago and on valuation levels less than the long-term average.

Smart investors, like Warren Buffett, had profited from the folly that had been engendered, rather than participating in it (to paraphrase one of his most repeated quotations).

Did I buy their enthusiasm? With some reservations, I did. Equity investors do need to have the word Japan whispered in their ears from time to time.

There is some comfort to be gained from looking at what has proved a graveyard for equity investors, though. Valuations at the end of the 1980s had reached stratospheric levels. In the “dash for trash” that followed the market’s turn last March, some shares have reached similarly stretched levels.

Keeping an eye on value may prove wise in the weeks ahead.

Brian Tora (brian.tora@ centaur.co.uk) is principal of the Tora Partnership

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