With the current decline in consumer confidence, Investment houses are struggling to decide which of their funds to push this year
Lack of consumer confidence means the forthcoming Isa season is expected to offer no improvement on last year's poor sales, making it difficult for investment houses to decide which funds to push.
By this time each year, investment houses have usually made a decision on the funds they would like to promote for the upcoming Isa season. Mark Dampier, head of research at Hargreaves Lansdown, said: 'It is more likely we will have a wealth management season rather than an Isa season this year. People will still part with their money but will want advice to do so.'
With the markets so low, now is a good time to be investing in any type of equity, according to Robin Stoakley, executive director at Schroders. He said: 'UK Equity Income funds are very attractive at the moment as they are yielding more than instant access deposit accounts. This is where I'd look to invest and is what most mailing houses will go for during the Isa season. There is no appetite for perceived higher risk products.'
This is despite the fact that, over recent weeks, many asset managers have been calling the turn in the market, noting equities look cheap and a growth strategy would be a good one to adopt. Last month, Bill Mott, of Credit Suisse Asset Management, said investors should adopt a growth bias, while on the bond side, Paul Read, of Invesco Perpetual, and Theo Zemek, of M&G, have both noted that it is the riskier high yield market that is likely to provide strong returns over the coming months as equity markets improve.
Much of the Isa season in 2000 was dedicated to investments in technology ' proven to be a disaster to those investors who piled in at the height of the boom. The sector is down some 60% since then and logic would dictate that it makes more sense to be buying at the bottom of the market than at the top, yet most investment houses have shied away from promoting their technology funds at this time.
SG Asset Management is waiting to see what the markets are going to do before making a firm decision on which fund to promote. Mik Bates, marketing director at Soc Gen, said: 'It is much more difficult this year to decide what to push. Normally we have sussed out what it will be by around mid-November.'
Schroders is currently looking at ideas for the Isa season, said Stoakley. The group has launched a three-in-one Isa package called UK Select, offering access to UK equity, UK Mid 250 and UK small-cap funds. Stoakley said: 'UK equity is a strong defensive market, which is needed in these uncertain times. We strongly believe there are other opportunities outside the FTSE 100, so we have skewed the package towards the Mid 250 and small caps.'
He added that there is also demand for the Schroder Medical Discovery fund. He said: 'It is a consistently top-selling fund for us and has performed well against other sectors. The long-term arguments are still valid for ageing population and an increase in healthcare products.'
A major part of deciding which funds will be successful is what distributors are thinking, said Bates. He added: 'It is usually by late October to early November that large distributors have decided what they will be selling. Their decision always helps us make our decision on which fund to push.'
Determining which funds you hope are going to be best-sellers is dependent both on distributor behaviour and the group's view on the markets, Bates said. He added: 'There is no point telling people to go into US and UK if clients want to go elsewhere. For instance, a lot of investors went into Europe last year and have negative memories, so we are not prepared for many European investors.'
Dampier said: 'Investment houses talk to us for our input on launches and what we think is sellable. We have some input but not to the extent that they would definitely stop a launch if we didn't think it would work.'
According to Stoakley: 'It is a combination of what distributors tell us and what we believe in going forward that helps us decide which funds to push. There will be demand for defensive products such as structured products, corporate bonds and income. People will certainly look at lower risk products such as equity income and, in some cases, managed products.'
Some doom-mongers are wondering whether there will be an Isa season at all this year, Bates said. 'This is all rather premature and is dependent on whether the UK economy picks up and the US moves forward,' he argued. 'Our hope is that the US will discount all bad news, then the economy can progress. People have been ignoring US funds so far; it may now be time to start pushing those.'
Dampier added that it is difficult to decide what to promote as he does not believe there will be much of an Isa season. He said: 'If you look back to the crisis of 1987, nobody bought Peps the year after and that was after only one year of negative returns. It took 14 months to get over the losses and re-attract investors. This time, people have had negative returns two years in a row. I may recommend that wary investors put their money into a cash Isa to use up the year's allowance.'
Stoakley has also heard reports of there being no Isa season this year. He said: 'My feeling is that it is too early to tell. February is a long time away and the positive outlook would be to look for a recovery in the US. The global terrorism issue could be clearer and if the Afghanistan and Middle Eastern situation is improving, this could improve sentiment by the start of the season.'
Firms and intermediaries whose revenue is dependent on the Isa season are downbeat about prospects, according to Stoakley. But, he believes, intermediaries who do not rely on a high proportion of revenues coming in from Isa sales are fairly sanguine about prospects.
Damper said low investor confidence may mean corporate bonds and equity income funds do well. 'Consumer confidence is key and is fragile at the moment,' he said. 'Retail business has gone down a long way. I think we will see the economy improve from here and in a year's time investors will begin to buy again.'
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