pa analysis why irving berlin is still right

When making their fund selection decisions, fund buyers often try to shoehorn fund managers into either a growth or a value box whereas if you ask the managers themselves they often claim to be a blend of the two.

pa analysis why irving berlin is still right


This doesn’t always help portfolio managers as it is they who want to do the blending themselves so on behalf of their clients they need greater control of their overall investment strategy. They won’t want to find themselves overweight one strategy compared to the other because of a majority change in allocation by the underlying managers.

When it comes to macroeconomic decisions, fund buyers only want one thing and that is growth – or at least signs of sustainable growth – but there is a definite time limit on how long we can wait for growth to appear before we read a spate of articles comparing our predicament with what has happened to Japan over the past 20-plus years.

Running out of time

After the financial crisis kicked off in 2008, each year has been greeted with a progressively more positive frame of mind only to turn sour in the second six months. Signs of growth are frustratingly short-lived and what is worrying is that the timeline may be shorter than we expected. Investors, portfolio managers and fund managers alike – as well as the general public – are running out of time for a set of UK economic numbers to pick up.

Even though unemployment has been falling this year – down from 2.7 million at the end of last year to less than 2.6 million by the end of May – a survey by the Chartered Institute of Personnel and Development (CIPD) shows employers in the private sector may have to scale back its staff numbers if the economy does not take a turn for the better.

The next unemployment figures come out on Wednesday.

According to the CIPD, one third of private sector employers retained more staff than they needed because they wanted to keep the particular skills they had; but nearly two-thirds of the same employers said they will have to consider cutting headcounts if growth did not return in the next 12 months.

Make or break

Gerwyn Davies, author of the report produced on the back of the survey results, described this as a ‘make or break moment’ for UK employers.

At the same time, the UK’s trade gap widened in June to its worst level since 1997, increasing by 60% in a month, from £2.7bn in May to £4.3bn in June.

If the Bank of England is a judge this situation will not change in the short term as only a week ago it forecast virtually zero growth for 2012, running alongside inflation of around 2%.

What this means for investors is that much-needed income will become harder and more expensive to find; persistently poor UK economic numbers will fuel the negative sentiment that markets feed off which will be a worry for equity holders; greater unemployment means bigger benefits bills to pay at a time when the size of the pot to pay these bills is becoming smaller – a problem for a country already in debt.

Tough times ahead

There are very few wealth managers I speak to who are anything other than top-down investors, relying first and foremost on economic data so for them things will get tougher before they get better.

Given I am still going through the comedown of what was, in my humble opinion, a pretty average closing ceremony to the London Olympics, the Irving Berlin lyric “There may be trouble ahead…” could be an understatement.

But with the same closing ceremony in mind, how about finishing with: “Always look on the bright side of life…”?



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