Fashion is a fickle thing and being a dedicated follower can sometimes mean being lumbered with emba...
Fashion is a fickle thing and being a dedicated follower can sometimes mean being lumbered with embarrassing mistakes in future years.
Last year's Betamax can quickly be become obsolete as VHS soars into ascendancy and what goes for video players goes for equity markets. The asset allocator has a choice of what is in vogue, what is so out of vogue it is bound to look like a shrewd investment in three years time and then there is the timeless elegance option.
Such a venture is not an easy task. Looking at the stock market rotation of 1999 - growth stocks were 'out' and cyclicals were 'in' and eventually back out again - how can an investor be sure that a stock has the potential for even sustainable performance, let alone outperformance? On the back of receding fears about a global meltdown, sentiment dictated that small caps and value cyclicals were once more restored to favour, for the long term. Then the slightest sniff of inflation and interest rate rises rocketed growth stocks back to pole position.
Of course this year's growth story is not last year's. It is a similar look with different accessories. Pharmaceuticals, the favourites of 1998, are still pretty unpopular, while one cyclical - advertising - is riding high on the back of new distribution channels from the fashionable internet.
The same phenomenon applies to investment funds. Who's hot and who's not in the celebrity manager arena can change as rapidly as stockmarket leadership, particularly when that is dictated by the previous year's performance.
It is for this reason the FSA's proposed 'league' tables for consumers are not planning to include past performance. Naturally such a proposal has been met by universal scorn by salesforces across the industry. After all, who wants to buy a fund that looks like a dog?
But, as the consultants to the project, Bacon & Woodrow, discovered there is no evidence that past performance has any correlation whatsoever with future performance. More importantly, let's remember how galling is it - even in the short term - to find that Perpetual has turned into a pair of flares or that M&G's Nick Train has Betamaxed out.
Thus the fund buyer is faced with a choice of contrarian investing in the hope of picking unrecognised value or falling foul of the vagaries of hype and market noise. Style guru Investment Week advises selecting the classic option. Quality, as they say, never goes out of fashion.
And, as with investment markets or companies, what is deeply out of favour and underperforming now could well be a winner in the future: Quality is not usually cheap so it is worth buying when it is available at a discount.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation