News/Events

Making a cautious investment [26th June 08]

I am always telling investors to remain calm and avoid panic when stock markets are in turmoil and the economic outlook is gloomy.  Nevertheless, I am increasingly finding that investors are becoming more cautious with their savings and pension funds during these volatile investment markets.

Clearly, investors are now looking at a more cautious investment strategy as the best selling Equity ISA since last November, according to IMA statistics, has been linked to the cautious managed sector.

I believe investors should not be put off by the term, Stocks and Shares Equity ISA, and remember that risk and volatility can be reduced by investing in a cautious managed style fund that is perhaps diversified across many assets

Many investment houses are now offering new funds in this sector and have accepted the case for multi-asset managed solutions which can generate attractive returns for investors without the need for a safety harness.

I would be the last to say that investing into this sector carries no risk but maybe the risk is lessened by having a wider spread of assets.  Indeed, the investment gurus suggest the most important decision is asset allocation and stock selection a very poor second.

There are Discretionary Portfolio Managers who use the Modern Portfolio Theory as the base for their asset allocation.  Each fund has different percentages of a variety of assets ranging from UK Equities to gold and these percentages are simply tinkered with once a year.  The downside being that the main funds had a high percentage of property which they have continued to buy when everyone else was trying to sell and has had an obvious effect on the performance.

Stockbrokers do not like this system because it is based on past statistics whilst they are looking into the future and doing their ‘mystic meg’ bit hoping to find a sector that will improve or indeed move out of as they feel it could be in for a poor time.  Individual shares do move quickly both ways and you have to be on top of your game to keep your nose in front and certainly Discretionary Services may be only right for the larger investors.

Having said that, over the last 6 months we have been approached by many clients who are not happy with their Discretionary Portfolio Management Service and having decisions made for them and felt some have been wrong.  Many clients like to talk things through with their adviser and have the opportunity of some input into the way their portfolio is managed.

I am not surprised especially when I come across portfolios run by leading banks.  Not only have I found their international exposure in unit trusts run by their subsidiary company but they seem to be moving a number of the direct shareholdings to unit trusts and again into effectively in-house funds –hardly independent or discretionary!

My belief is quite simply as, firstly, the real focus should be on building a long term savings portfolio, reduce any high risk exposure and only invest where you feel comfortable.  Secondly, build a working relationship with your investment adviser so that you are aware of the risks involved and with someone who will keep in contact with you when markets are difficult and not just when they are flying high.

This article was written by Langtons - Published in the Western Morning News, Money, 26th June 2008