8
SOLUTIONS FOR ALL SEASONS
MAY 2012 Keep on your toes in uncertain times
Ever since AD600, investors have been cautioned to spread their funds in a range of assets. These days, it is even more important they adopt an active strategy to face the challenge of seeking returns in an uncertain investment landscape.
PAUL FARROW Personal finance editor, Telegraph
There is no doubt which asset class is flavour of the month. Fixed income funds have now topped the best-seller charts for seven consecutive months, according to the latest Investment Man- agement Association statistics. Investors nervous about losing their capital are looking to safer havens and shunning equities. But many, including Goldman Sachs, are predict- ing the end of a decade-long bull run for bonds. “It’s time to say a long goodbye to bonds, and embrace the ‘long good buy’ for equities,” says Peter Oppen- heimer, chief global equity strategist.
This should remind investors that fixed income will not be a “fund for all seasons”. Fund experts say in today’s uncertain climate, active asset alloca- tion is key. Marcus Brookes, head of multi-manager at Cazenove Capital Management says the days of “buy and hold” are over, at least for the time being. Adaptability is crucial. Richard Skelt, co-head of multi- asset investment at Fidelity, admits that while sensible asset allocation has never been more important, it is not an easy strategy to undertake. Skelt points to the plight of government bonds to highlight the difficulties of second- guessing the future. In the 1980s, bond yields were in the high double digits but since then yields have fallen to low single digits. This has led to a “steady tailwind of capital appreciation” and bonds have shown strong returns in absolute terms and relative to other
asset classes. With government debt yielding two per cent or lower in the big economies, there is little prospect of matching those past returns now. “A reversion of yields to their long- term average would result in low or negative returns,” Skelt adds. “Were we to use the last 30 years of the gov- ernment bond index as a predictor of returns over the next 30 years, we would be doomed to disappointment.” The challenge when setting alloca- tion policy is adjusting to the lack of certainty about returns across the investment landscape. What can we say about likely returns of a stocks, bonds and cash portfolio for the next five years? Or the next 25? Asset allocation needs to be more sophisticated than simply looking at past performance. Investors also have a broader range of assets from which to choose: “A retail investor selecting an appropriate
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48