By Mohamed Ali Bernat Research from Close Fund Management has shown that first quarter returns have...
By Mohamed Ali Bernat
Research from Close Fund Management has shown that first quarter returns have been significantly better for investments started at the end of the preceding year than those started between January and March.
According to the research, an investor who bought into the UK All Companies Sector in the fourth quarter of 1999 would have returns of 6.75% by the end of the year, compared with 1.47% for the first quarter of 2000.
The margin is narrower for investors in the FTSE 100 Index, with a difference of just 0.03%, but investors in the Techmark index have seen widely differing returns depending on when they invested.
An investor who bought into the index in the first quarter of 2000, just before the market peaked and went into retreat, would be nursing losses of 3.51% over the first three months of 2000. During the fourth quarter of 1999, they would be looking at gains of 65.07%.
Marc Gordon, managing director of Close Fund Management, said there were both tangible and intangible reasons for this pattern of outperformance.
He added: "Everybody likes to see positive returns for the year end and which is why there is a pattern of marking prices up at this time.
"Annual bonuses may be a factor but this is more to do with pension funds where it is nice to report to trustees that the calendar year has been positive."
Gordon said the main reason there was more liquidity to the market at the end of the financial year was down to basic human nature.
He said: "People are lazy and want to leave things to the last minute so there is this great rush as the end of the tax year approaches.
"The problem is that the old adage of 'sell in May and go away' is still a common market trend with 1998 a notable exception."
Gordon said he believed current market volatility was likely to be dampened by a final ruling on the US presidential election with Alan Greenspan's comments that the Federal Reserve Bank was more likely to be lowering rates next year than raising them also designed to calm the markets.
He added: "Institutions have quite high liquidity at the moment as do retail funds, although they are more active in the market.
"From speaking to institutions it seems they are waiting to see a bit of direction on markets before they move back in."
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