What our clients are telling us...

As 2008 draws to a close, many investors may be glad to see the back of it.  It has certainly been a very unusual year, seeing the depreciation of value right across the asset class board – equities, corporate bonds, property and rates on cash investments have all fallen over the past 12 months as a result of the economic recession we are currently in.  The result of this is understandable nervousness from investors, and in this edition of the Minerva I look to address some of the queries I have been receiving from ‘Direct’ clients and the opportunities that exist.

In these uncertain times (and even during periods of economic growth) some investors may describe themselves as being ‘cautious’ or ‘defensive’ with their choice of investment.  For example, you may be invested in a ‘cautious managed’ unit trust or OEIC.  The intention of these funds is to provide a level of capital growth or income, whilst reducing the volatility associated with full stockmarket investment by balancing your portfolio between equities and bonds.  Indeed, a cautious managed* unit trust or OEIC can only invest up to 60% in equity based investments.

Unfortunately, most investors in these types of unit trusts or OEICs are likely to have also suffered disappointing returns over the past year.  The sector average return of unit trusts in the cautious managed sector is nearly 16% down**.  Whilst this is not as severe as some unit trusts or OEICs more heavily linked to the FTSE (the FTSE All-share has fallen 29% in the same period**), some of you have asked why cautious managed funds have suffered this level of depreciation.  The answer to this is that a conventionally invested cautious managed fund does not offer you any guarantees from a fall in value – you are still invested directly in the market, the cautious element only reflects the asset breakdown which the fund invests in.  With all main asset classes experiencing depreciation this year, these funds have provided only a limited amount of protection against the recent extraordinary downturn.  

Another question we have been asked lately, which leads on from the above query, is what options are available to direct investors who are nervous, or cautious about going back into the market?  One option is to consider a savings-based route.  We have recently seen increased demand in products offering fixed term guaranteed rates of interest, as well as capital protection guarantees.  Instant access savings accounts may offer meagre returns in the medium term as a result of the recent falls in interest rates, but for those who are willing to part with their savings for a fixed period there are some more attractive offers available.  These products offer the possibility of securing an interest rate above the current base rate.  We have details of such relevant products and would be happy to talk them through with you.

Other investors are now starting to look at what value and opportunity exists in the investment market, and they have been asking our views.  Whilst times are still uncertain, and we are unable to suggest when equity values may begin to prosper again, we do believe that for those who are looking for a medium to long term investment, the start of 2009 may prove to offer excellent potential value.  As part of the coming ISA season, our Investment Research team will be selecting portfolios of unit trusts and OEICs, to potentially suit a range of investment objectives and goals.  These portfolios will offer you the option to invest for growth, income, a combination of the two, and we will highlight funds that, for example, invest purely in Government backed securities (Gilts).  We will also offer what we believe to be a unique reporting service and support for these portfolios on an ongoing basis.  If you are looking to modify your portfolio, or invest new money into the market, you should find this new service of interest.  

If you are looking to amend your investment portfolio or would like to discuss the content of this article, please feel free to contact Peter McLean on 01225 823947.

Thank you and Merry Christmas!

*the IMA cautious managed sector
**financial express, 18/12/07 – 18/12/08