The FTSE 100 ended last year at 5,897 (up 5.8% in 12 months); the Eurostoxx 50 ended at 2,635 (13.79%); the S&P 500 finished at 1,426 (13.4%).
While they still have a long way to go to reach their highs, at face value these equity markets look like they are in rude health despite the economic woes in the UK, Europe and the US.
This certainly shows in terms of fund sales, as equities stole a march on fixed income for the last quarter of the year, actually outselling bond funds in each of the last four months of 2012, according to the latest IMA stats.
Is this a sign that investors are upping their risk budget and getting back into the markets? Sort of…
The same IMA stats also showed that global equity funds (£4.1bn) dominated UK (-£982m), US (£157m), Asia (690m) and Europe (-£527m) funds in terms of net inflows.
Global emerging market funds remain the most popular route for investors to access the developing world directly, as Gary Shepherd wrote in January’s issue of Portfolio Adviser (see pages 14 and 15). Investors, therefore, seem happy to take the equity risk but they want someone else to take the investment risk and make the geography and stock calls for them.
The emphasis on caution is everywhere.
In portfolios: The latest ARC Private Client Indices (PCI) report shows that its Cautious index returned 5.2% over the past two years and is its best-performing index. Balanced (4.6%), Steady Growth (4.3%) and Equity Risk (3.6%) all faltered.
In funds: There is caution in Marcus Brookes’s £1bn Cazenove Diversity Fund. While not having any particularly bearish views he has pared back his equity holdings and, with no confidence that bond yields will fall further, he has taken the fund’s cash (in dollars) levels to 27%, the highest on record.
James Thomson, a high-conviction manager, has 16% of his Rathbone Global Opportunities Fund in cash, a position he has retained for at least the past six months.
In companies: There are plenty of stories of cash-rich companies, with balance sheets awash with cash as they wait for either an M&A opportunity or simply in case we get another financial/economic downturn.
In its PCI report, ARC says: “Private clients should be in a more relaxed frame of mind after the solid returns of 2012”, with double digit returns across all four of indices taking the end of 2007 as its start point.
Their conclusion? “Tactical asset allocation has rarely been so difficult.” I agree, so I am glad there are experts out there who are brave enough to use cash even though being overly cautious may see some miss out on early stock market rallies.
