With the FTSE on the rebound since last week’s Eurozone talks – and having outperformed MSCI World and MSCI Emerging Markets over the past six months – is it time to top up your domestic holdings?
For me, and I suspect many others, the IMA’s statistics for September – released last week – came as something of a surprise. To recap, while total net retail sales slumped to their lowest level for two years, UK Corporate bond and UK Equity Income topped the rankings as the best-selling sectors, while even the ever-derided UK Gilts sector saw a rise in sales.
What are we to make of this? In tough economic times, it appears that there’s no place like home, which contradicts the message we’ve been hearing in recent years: that UK investors must cut their outmoded reliance on the domestic market and skew their portfolios more towards growth markets, i.e. the emerging world.
Of course, one month does not make a trend, and it will be interesting to read the IMA’s statistics for the whole of 2011 come the end of the year. Certainly, the buzz surrounding emerging markets is not what it was a year ago – though, perhaps that means it’s the right time to invest – while Europe, Japan and the US all have their own problems to deal with.
Multiple options
We’ve also had several high profile UK equity fund launches in recent weeks, from the likes of BlackRock, Old Mutual Asset Managers and Eden Financial. With this in mind, a topic we will be covering in the next issue of Portfolio Adviser is how you pick between the vast array of available options in the UK. In particular, given the rise of trackers/ETFs, we will be assessing the validity of fund managers’ claims that they are unconstrained from the index they are benchmarked against.
As Andrew Wilson, head of investments at Towry, says: “We are very wary of fund managers that say they are ‘benchmark unaware’ or ‘benchmark unconstrained’; then you look at their top 10 holdings and they hold HSBC, Glaxo, AstraZeneca and so forth. There is a big difference from people who claim they are unconstrained, and those that genuinely are.”
Wilson believes that up to 90% of funds within the UK All Companies sector follow an index-plus approach, but how many of those fund managers would admit it?
The real acid test will come again when, as predicted today by several economists, UK GDP slows again in the next two or more quarters. As markets react to an oncoming recession, will the UK still be the place to invest, and how many managers will deliver the growth investors crave?
