Conflicting views on equities v bonds
Filed under: Investing, Markets, Property
Latest fund sales statistics from the Investment Management Association shows the institutional and retail market have conflicting views on bonds and equities. The IMA figures reveal that net retail sales year to date are 10 times higher than they were in 2008, with equity funds outselling bond funds by five to one.
But it was a very different picture in the institutional market in November, which saw £341m into bond funds versus outflows of £215m in equity funds. Have institutions have been more measured in their response to a 2009 market rally?
Martin Bamford, financial planner with Informed Choice believes the answer is not quite so straight forward.
"There is always a risk that investors will invest money based on what has come before rather than what is likely to come next. We call this investing in the rear view mirror, and it is just as dangerous as driving without looking ahead.
Different objectives
"It is sometimes worth looking at what the institutional investors are doing, although remember that they have their own objectives and these might not match what you are trying to achieve with your own portfolio."He adds: "If we see the expected gilt sell-off this year, then investment grade corporate bonds could also fall in value, so the opportunities in the bond market are more likely to sit with the higher yielding corporate bonds.|"
Jason Whitcombe, IFA with Evolve Financial Planning believes equity investors should not get carried away by how markets bounced back in 2009.
Fear or greed
"Warren Buffet is famously quoted as saying 'Be fearful when others are greedy, and be greedy when others are fearful'."However, human psychology is such that we generally do the opposite. We like to follow the herd and if something is going up, most people like to buy it.
"It doesn't therefore surprise me that retail investors have been heavily backing equities of late. Whilst no one can predict the future it is fair to say that equities are a lot less attractive now that they were in early 2009 given the colossal rises of late."
He adds: "I would encourage investors to have a good spread between equities, bonds, property and cash in their portfolios and rebalance this on a regular basis.
"If you rebalanced your portfolio at the start of 2009 the equity component will have risen significantly. Adding even more to equities now would mean that you are taking much more stockmarket risk than you were a year ago. This isn't logical unless your attitude to risk has changed."
Property back in vogue
The latest IMA figures also showed that property fund sales increased significantly. Bamford can understand the attraction in property funds and thinks there is more mileage there for investors.
"In the fourth quarter last year we took the decision to adjust our house view for UK Commercial Property from underweight to neutral. The average fund had lost around 40% since the summer of 2007 and we were starting to see the first positive monthly returns.
"Whilst we feel that a sharp rebound in commercial property prices is unlikely, there are some very attractive yields now available in this asset class and it does represent a good long term investment opportunity."
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