Following two years of poor stock market returns, advisers may ask whether there will be an Isa seas...
Following two years of poor stock market returns, advisers may ask whether there will be an Isa season in 2003. In fact, the impact of falls in the last two years creates negative returns for five consecutive Plan years if investors bought their Isa (or pre-98 Pep) in March each year. This is based on an investment into the average UK or International equity fund.
It is therefore no surprise that investor sentiment, which is strongly correlated to sales of retail investment products like Isas, has dropped to very low levels. A number of measures show that short-term investor confidence remains below levels reached in September 2001, although the November rally did inspire some uplift.
Add to this heightening global political tensions and the still-present talk of recession, and few would forecast a strong 2003 Isa season. But does it mean that there will be no opportunities for advisers?
We think that would be a mistaken conclusion. Applying some seasonal uplift from current industry sales levels, and assuming ' with some justification ' that we will see a late surge and advised channels will continue to dominate, then this will be close to a £1bn collective opportunity for advisers.
Nonetheless, it will not be easy to convince customers to open what could be their sixth consecutive non-performing annual investment, even if stock markets may objectively represent a long-term buying opportunity. Experience shows that it is precisely at times like this that investors may find the most attractive opportunities, and our fund managers report that this is the case at a portfolio-level. How can we collectively encourage clients to participate?
One rule, which will probably hold true, is that despite the loss of confidence in some traditional investment types, now is not the time for investors to experiment with fads and unproven providers. Instead, investors will favour the reassurance of proven investment strategies and trusted track records.
Furthermore, prospects for long-run equity returns will be lower than in recent decades, and this is already exerting an influence on investors' thinking. The expectation of a continued shift into a lower-growth, low inflation global environment means the equity risk premium over a risk-free asset (such as gilts) will reduce.
This may explain the current popularity of equity income funds, partly due to the recent cyclical out-performance of the value style that has put many higher-yielding equity funds towards the top of the performance tables. But it probably also reflects the psychological appeal of dividends as a tangible element of lower overall total returns, particularly at times of uncertainty.
Another impact of this long-term shift is in the premium investors place on star managers ' however much we dislike the term. Investors are calculating that if they take the risk of investing in equities, then they want returns that make it count. Gone is the appeal of passive strategies. Investors demand funds and managers that, through stockpicking or other strategies, can deliver that elusive alpha of index-beating returns.
Stuart Holah is executive director, IFA business, at Fidelity Investments
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From 6 April 2019