Market Thoughts

We are often asked what sector should I invest in to catch a rising market as, when or if markets start to pull out of recession. Simple enough question but a tough one to answer.

If we based our answer on tradition then the poorest performing sectors during the recession would most likely be the strongest out of recession. Accordingly we would be driven towards UK Smaller Companies, Global Emerging Markets, UK All Companies & UK Equity Income.

On the other hand many commentators favour North America given that America was first into recession and could reasonably be expected to be first out. With dividends being maintained at reasonable levels UK Equity Income is often a favoured section as any company that can manage to maintain a strong dividend policy through the troubled times should be in a stronger position as the economy pulls out of recession.

Then we have the advocates of corporate bonds believing they will offer attractive returns more akin to the cautious investor looking for a higher return on their deposit based investments.

You can start to see the dilemma we as advisers face when challenged with the opening question. However it is our job to try and make some sense of everything that is going on and perhaps for the first time in months we have been given the briefest of indicators where to turn.

The month of March was a welcome respite from the continual downward spiral of falling prices. Many sectors produced positive results during a time when the news was still full of gloom and doom.

If we analyse the figures we can see that the six top performing sectors during this positive month were Asia Pacific Ex Japan, Global Emerging Markets, Asia Pacific Inc Japan, Technology & Telecoms, Europe Excl’d UK and the Specialist sector which includes commodities and financials. Source: Citywire April 2009

Perhaps surprisingly at the bottom of the table with negative returns are GBP Corporate Bonds, GBP High Yield, GBP Strategic Bond, UK Equity & Bond, UK Equity & Growth and UK Equity Income. I believe these figures are the most relative and should set certain alarm bells ringing. Many investors have been encouraged towards Corporate Bonds on the strength of their conceived low risk nature. However low risk is not no risk and with defaults a realistic threat I believe investors should be cautious when committing significant portions of their portfolios towards Corporate Bonds for the short term at least.

If the month of March is anything to go on for those investors willing to accept risk in the search for greater reward Global Emerging Markets, Asia Pacific or indeed Specialist funds would appear to offer the greatest opportunity albeit it must be appreciated that investment in these sectors are normally deemed as higher risk. That said whether we are in “normal” territory is questionable and risk must be quantified against market positions. With fund prices near to all time lows it could be argued that risk has been reduced due to the cheaper buying price.

With many investors seeking to recoup positions in investment and pension funds I am certain this question will arise again and again. We will continue to monitor the situation and keep you informed as events progress. If you would like to speak with an adviser to discuss all the options open to you please do not hesitate to get in touch.



M.S. Ferguson
Managing Director