Intermediaries that come up with fresh product ideas will be the ones to survive the current market volatility
I've come across a few investors ' individuals and those representing institutions, who have capitulated. They no longer believe the story that the best place over time for your money is the equity market. They want out. For them it is not a question of a short-term shift or a temporary safe haven but a long-term re-balancing of their portfolios.
Advice to buy on the dips provokes a hollow laugh from these players. They believe we are in the early stage of a suckers rally. For the moment, they have parked funds in short dated bonds or the newly revived money market accounts. As stock prices have plunged, bonds have become more expensive. But if equity markets are only half way to the bottom, then bonds are not as pricey as they might become.
The prospect of future double digit stock market returns is remote, to say the least, but there is some hope that corporate bonds will provide a little zest to the portfolio, although even this is not exactly an enticing option. In the last three months there has been a wave of credit downgrades across most market sectors, reflecting the disillusionment that has so damaged share prices. The likelihood of a double-dip recession, led by the US economy, is now broadly recognised. A few investment banks say they are positioned for recovery, but they have been saying that for months, even years. The Bank of England's Monetary Policy Committee wisely decided that it should keep its ammunition of interest rate cuts dry, for effective use in more pressing circumstances.
Anecdotal evidence suggests that capitulation ' when investors see no point of engaging further in the stock market ' is not that widespread. Sure, retail investors are disappointed with stock market returns. Some are disgusted by the waves of corporate sleaze that seems to be washing up on home shore from across the sea.
But soon after the obligatory expression of outrage comes the pitch : where do I put my money now? Firstly, a lot of mass affluent or high net worth players still have money, and they want to invest it. Secondly, they are not all that risk averse if they think there is a better than even chance of getting something back. They just don't trust the traditional outlets any more, either to protect them or to offer them sound ideas.
Which is why relationship businesses are flourishing. Private client networks, private equity firms, film fundraisers, art dealers and bloodstock breeders report surprisingly strong interest from private investors. Niche businesses with short communication lines to their backers are in demand. Successful and competent managers and entrepreneurs are bailing out of high status jobs and big profile companies for the greater freedom and enjoyment they find in unlisted firms.
Independent financial advisers are bemoaning clients' lack of interest in the same tired old menu of soggy UK growth funds, international theme catch-ups or Japanese try-me-again plans. They need to become more imaginative. That means getting out to do the research and come up with some ideas, instead of waiting for marketing departments to feed them pre-arranged packages. During the boom times, ideas were cheap. Money was made on the promise of an idea, before the ink was dry. News that London broker Pereire Tod is suing Credit Lyonnais Securities for repeated plagiarism of its research over 11 months can hardly be surprising. Good ideas are at a premium and the more inspired advisers will seek to add value during these depressed times by identifying and presenting them.
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