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Article 13 Seek And You May Find .....
Wednesday, 12th August 2009
Seek And You May Find .....
Whilst many in the wider public bemoan the returns on their bank deposits, ISA investments and pension funds, such individuals would do well to study the relationship between risk and reward, in order to identify where their money might best work for them. In order to best achieve this, it is important to recognise the opportunities and threats within investment markets.
As an overview, Financial markets remain volatile, with forthcoming company earnings announcements likely to shape the short term outlook for equities. We would expect uncertainty to continue into 2010, despite the likelihood of a modest economic recovery in the second part of 2010. Investors need to decide whether to invest in short term cycles, which is a risky process or to buy into certain asset classes, based on an assessment of the income yield available, against the level of risk to their capital, in return for that income.
Equity markets have fallen 25%, risen 40% and fallen 10% in the three clear cycles witnessed so far this year. In our opinion, this represents too much volatility for a return of 5% if investors had ‘held’ over this period. We expect equity markets to continue in this manner for the short term. Therefore, we are not recommending being over exposed to this part of the market, for the short term, at least.
In an environment where official interest rates look set to be lower for longer, we expect the yields from securer investments to continue, to attract demand. An example of falling demand this week comes from National Savings and Premium Bond investments, where deposits reached record highs in the last quarter of 2008 and have now reached record lows. This would suggest people are more confident than they were in general by moving away form such secure assets and they are looking elsewhere, for a better return on their capital.
Quality corporate bonds remain an attraction, though fund selection is crucial. As the market moves forward, over the coming months, we will continue to look to relatively high and secure yields with a moving balance between corporate bonds, equity income and in due course, commercial property. In our view yield will remain important because we live in a world of low cash returns. There are risks to consider but we feel these risks are manageable by careful allocation. Recent returns from our house portfolios of circa 7% net, over the last 6 months with little volatility, look attractive. We believe, over the short to medium term, there is an opportunity for continued growth at these levels, taking into account the global economic outlook at this time.
Investors and their advisers are going to have to be much more nimble in the management of their investments, if they want to make decent returns. In an era of great economic uncertainty, investors need to pick up opportunities where they can and not be afraid to sell, when the storm clouds are gathering.
Investors are also consistently warned by fund managers that timing the market is for fools. They have a point but sticking with an investment that you no longer have faith in and appears to be heading one way only - down - is hardly a bright idea either.
Of course, as with everything in life there are no guarantees, except the fact if you do nothing, you generally don’t achieve a great deal. There are nevertheless, real returns and opportunities available, for those who seek it. What is clear, however, is the argument: ‘we should all be taking a more active interest in our investments and finances’ is difficult to argue against.
