Declining equity commissions and cheaper direct access trading are keeping managers on their toes
'Improved', 'encouraging' and 'booming' ' all headlines on a single page. Things must be looking up, or else things are being talked up. US Treasury officials ostentatiously let slip that the economy is poised 'like a coiled spring' to deliver economic growth of around 4.75% next year. At home, the Government is borrowing like only one who knows that divine help is at hand could.
There is no doubt recent investor fears are being dispelled. The markets liked the news from Iraq. Asia is putting the Sars virus behind it and companies are beginning to feel the benefits of hard decisions taken last year. AIG, the world's largest insurance company, reported soaring growth through the second quarter. Airlines (apart from BA) are responding quickly to the rise in business confidence, and the low cost carriers particularly are enjoying increased traffic. Words like 'rise', 'lift' and 'exceed' leap out from the latest company results in every region. In Japan, Tokyo Steel has pleased its backers. In the US, Dow Chemical, Bristol Myers Squibb and Lilly are all in the money, with BMS second quarter profits up by 80%. Bill Gates has just chucked another $500m at Microsoft's research budget and the company is starting to hire again.
In the UK, number one fund guru Anthony Bolton again pronounced the end of the equity bear market, and many are ready to listen, even if corporate gains are more modest here. L&G, like many firms, has had lower sales but better profitability. Autonomy and GlaxoSmithKline were both the right side of investor expectations, while Provident Financial and retail group GUS also emerged smiling. Reuters is back in the black. Some big index movers continue to battle their individual demons. AT&T, MCI and Sprint are not yet in the clear. Sony is struggling, as is AOL Time Warner. Cadbury Schweppes is still swinging the axe, cutting jobs, slashing procurement costs and reviewing product ranges ' the confectionary giant is the latest to consider slapping healthy lifestyle messages on its packaging.
As stock exchanges report a definite upturn in applications for new listings, it seems investors are recovering some appetite for risk, ready to revisit the glorious past. The last three years have been dire and everyone just wants to get back to making and enjoying their money.
But such ravages will not be covered up so swiftly. For a start, much of the industry's high profile talent has quietly stashed their cash and quit. Choice used to be the mantra of fund providers, but product ranges have been downsized with everything else, so that enticing little Puma infrastructure fund you always had your eye on has probably gone the way of the Incas. With new regulatory scrutiny, the investment business feels very different. One research report suggests that any institutional trader is now worth four or five portfolio managers, in terms of cost savings and profitability. Declining equity commissions, more use of portfolio trading and cheaper direct access trading are factors piling pressure on traditional portfolio managers and analysts.
There is good news around in the equity markets, and quite a lot of it. But to profit from it, you just have to be in the right market, the precise sector, the exact stock and have selected the best manager from an investment house that will still be standing in three years' time. If that seems challenging, take a moment to consider the principal alternative: the tottering bond markets.
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