|You are in: Business|
Wednesday, 18 September, 2002, 08:58 GMT 09:58 UK
New investment world baffles City gurus
The Queen, it seems, is to diversify.
No longer will her investment patronage be focused on a limited range of traditional assets.
If, that is, her City adviser Cazenove gives monarchs the same advice as offered to subjects.
"We believe that private clients need to consider diversifying beyond equity and bond markets into a broader range of asset classes," Andrew Ross, chief executive at Cazenove Fund Management, told investors in a circular last week.
Hedge funds, for instance, near banished in 1998 after a spectacular bust, are now a must-have in the Cazenove set.
"Most private clients should consider allocating a proportion of their assets to hedge funds," Mr Ross wrote.
"Strategic asset allocation" - City-speak for spreading one's risks - is the buzz phrase not just at Cazenove, but throughout UK finance.
A fine balance
"The way you invest in this market is through good asset allocation, not through just selecting a few equities," says Justin Urquhart Stewart, marketing director at Seven Investment Management.
"You need a balance of bonds, cash, property and equities."
Certainly the FTSE's ups and downs, and downs, continue to hog the headlines.
But it is the bond market which should really steal the column inches.
"The bond market is five times larger than the equity market, yet people tend to forget about that," says Mr Urquhart Stewart.
The name's bond
Examine the daily listings in the FT and you will find entries for shares and funds, and even for government bonds.
The changes in prices of company bonds, however, go unrecorded.
"They are not something people traditionally try to own in this country," Mr Urquhart Stewart says.
"Unfortunately our broking fraternity focuses far too much on equities, and on a short term basis."
Indeed, equity specialists used to receiving returns of 15% a year should be grateful now for 5-7% achieved from a diversified portfolio.
Back to the future
The trouble for shares is that the investment overview has changed.
Or, rather, reverted to pre-1980 rules.
"What we had in the 1980s and 1990s was a once-in-two-centuries phenomenon of a bull market," one analyst says.
"Historically, about a third of returns from share investments have come from dividends.
"It looks like that pattern is reasserting itself."
Indeed, it was to high-yielding stocks that investors rushed when the tech bubble collapsed, and new economics was exposed as old cobblers.
Cash switched to power firms, chemical companies even, ugh, some manufacturers whose modest actual earnings had seemed pocket money when compared with the fortunes promised by internet start-ups.
Ditching dot.coms, investors embraced so-called "defensive" stocks - shares in companies which offered, furthermore, slump resistance.
Come boom or bust, Britons would need housing, food and water, healthcare and military protection.
So why not invest in military equipment maker BAE Systems, drug maker AstraZeneca, utility International Power, or supermarket chain Safeway?
For a while the trend held, and shares in utilities, for instance, proved among the more resistant to last year's stock market slide.
"One of the trends that stood up best was that high-yielding shares performed best," says Paul Kavanagh, director of stockbroking at Killik.
But this summer's slump revealed that even going defensive offered only limited protection.
An investor who split his money in mid-May between BAE, AstraZeneca and Safeway shares would now be sitting on a 33% loss.
International Power, meanwhile, has slid sufficiently to see its shares ejected from the FTSE 100 elite on Friday.
"The market has changed," Mr Kavanagh says.
"You can get the right sector, only to find the stock you pick in it blows up in your face.
"It is making our job difficult at the moment, I can tell you."
Fund managers are having to delve further and further into firms' fundamentals to identify those best placed to prosper amid humdrum UK economic growth.
"You have actually had to look down into companies and see which ones are generating safe cash flow, and which ones are seeing a deterioration in their market places," says Steve Russell, equity strategist at HSBC.
Stars in their eyes
Hence a new focus on the star fund managers best able to sort their BATs from their BAEs.
Cazenove itself two weeks ago poached five "highly rated" fund managers. (From HSBC, as it happens).
Hence also the widespread advice to investors to diversify into hedge funds and property.
Perhaps the housing bubble is indeed about to burst, as price rises outstrip wage increases and rental values slide.
But in the long term, it would seem a Briton's home (or palace) is not just their castle, but their nest egg, asset safety net and pension pot too.
13 Sep 02 | Business
18 Sep 02 | Business
05 Aug 02 | Business
26 Jul 02 | Business
The BBC is not responsible for the content of external internet sites
Top Business stories now:
Links to more Business stories are at the foot of the page.
|E-mail this story to a friend|
Links to more Business stories
To BBC Sport>> | To BBC Weather>> | To BBC World Service>>
© MMIII | News Sources | Privacy