QROPS Advice: Investment News: WORLD'S BEST MARKETS

A good index-tracking fund can and should be one of the core components of any diversified portfolio. But there's a problem with ETFs. They provide a simple, efficient and cheap solution to lots of investment difficulties yet private investors have been slow to buy them. There are several reasons for this including our continued love affair with star fund managers.
But a bigger problem is probably what's been called the 'biscuit tin' problem – defined by one chief executive of an ETF firm as "investors not knowing what the heck our ETF actually tracks. We'd say it tracked the so and so MSCI index and they'd look at us blankly".
This brutal assessment gets to the heart of the problem. To get the best from low-cost trackers, you need to understand what the fund is actually tracking first.
It's all about the index
Indices are not all equal. Track an imperfect index that's poorly constructed, overweight in just a few shares (say banking stocks in 2008) and you'll end up destroying a large chunk of your money despite all the academics' talk about efficient markets and perfectly optimised portfolios. But there is a huge range of major markets that can be tracked using mainstream indices – nearly all the big asset classes and markets boast an index that's become a part of everyday language. In the US, for example, the level of the Dow Jones Industrial Average or the S&P is the subject of intense daily discussion on a number of major news programme s, while here in the UK all the major news organisations talk hourly about the current level of the FTSE 100 index of major London listed blue-chip companies.
The key for investors is to work out which indices – and markets – really matter and then work out how best to invest in these markets. FTSE Group alone calculates more than 120,000 indices.
In many liquid, mature markets index-tracking funds are probably the cheapest and arguably the best way of buying long-term exposure. Remember that an index-tracking fund will only ever buy the most popular stocks that are increasing in value – it's a giant weighing machine that is heavily influenced by momentum, so if a market and thus an index is overweight popular mining stocks, expect the ETF to be equally overweight.
by: David Stevenson

QROPS Advice: Investment News: The case for multi-asset funds

The first month of 2010 has been marked by a deluge of multi-asset fund launches. A week ago, Heartwood Wealth Management announced the launch of its CF Heartwood Cautious Multi-Asset and Growth Multi-Asset Funds, which will be followed soon with the launch of the Balanced and Balanced Income Funds. The new multi-asset funds will invest primarily in third party funds, including alternatives, structured products and derivatives as appropriate.
Other recent launches include Prudential's range of five multi-asset funds with different risk levels: Defensive, Cautious, Cautious Growth, Balanced and Adventurous, and Scottish Widows Investment Partnership (SWIP)'s SWIP Multi-Manager Optimal Multi-Asset Fund, a higher risk/return follow-up to its cautious SWIP Multi-Manager Diversity Fund launched in 2007. Allianz Global Investors is another provider expected to launch a multi-asset fund.
The recent hike in multi-asset fund launches brings some truth to predictions by industry players and independent financial advisers (IFAs) that multi-asset funds will be the "hot financial product" of 2010. The term 'multi-asset funds' refers to funds which invest across several asset classes and fund managers, which means investors are not exposed to the market gains or losses of just one asset class. Ultimately, multi-asset managers create the potential for capital growth and the conditions where the better performers may offset the poor performers.
Investors' desire to spread investment risk, coupled with the low interest rate environment in which it is hard to get returns on cash, have been touted as some of the reasons behind the increased focus on diversified strategies.
Another, more pressing, reason behind the spate of launches is the need for IFAs to meet the demands of growing regulation, such as the Financial Services Authority's (FSA) Treating Customers Fairly (TCF) initiative and the Retail Distribution Review (RDR). These require IFAs to ensure a fair deal for consumers and consider as wide as possible a range of investment products to meet client risk and investment objectives.
So what benefits do multi-asset funds hold for the private investor?
By: Leonora Walters

QROPS Advice: Investment News: Spotlight on Technology Funds

Following the much-publicised bursting of the 'dot.com' bubble in 2000, many investors have understandably ignored technology funds as being part of their investment portfolio. Catastrophic losses followed unprecedented excitement around a new sector that promised so much yet ultimately delivered, for some, almost nothing.
Technology funds became a victim of their own success in a very short space of time, in January 1999 investors put just GBP5m into technology funds, in January 2000 they attracted GBP238m (source: Investment Management Association (UK)). The future value of technology equities was vastly over estimated, and when these expectations were not met, the industry duly collapsed.
However, anybody that has kept a close eye on the development of technology funds since 2000 will know that it now represents a very real, if not relatively unknown, investment opportunity (the Lipper Science and Technology Funds sector average returned 69.31percent in 2009). Learning from the mistakes of a decade ago, technology companies started focusing on profits and cash flows rather than just revenue growth, so much so that the technology sector is now in very healthy financial shape, with either little or no balance sheet debt. More importantly, valuations based on technology companies represent an honest reflection of future worth, unlike they did 10 years ago.
Whilst the sector didn't escape the effects of the recent global recession, it has emerged relatively unscathed owing to an almost unique appeal to both retail and business markets. Consumers' seemingly insatiable appetite the latest technology gadgets; mobile phones, multi media and gaming consoles, plasma and LCD TVs etc., coupled with need for IT infrastructure solutions to accommodate the rapid growth of many financial centres based in emerging market economies, has served as a regular and diverse income stream for many new and established technology firms.
From innovative smartphones to 'tablet' computers and 3-D TV, technology consumers and investors have a lot to look forward to in 2010 and beyond. Warren Tennant, manager of the Hansard Invesco Global Technology fund (MC23, available in both HIL and HEL) has greater confidence in the medium-term outlook and continues to be encouraged that the coordinated global stimulus will positively affect the global economy. Going forward, he sees the possibility for improvements in credit markets, stabilisation of demand patterns and conditions for secular growth. And have consistently highlighted the long-term positive trends for technology in the team outlook.
Hansard has a variety of fund links across a diverse range of asset classes, whether your clients have a conservative, balanced or adventurous outlook. To find out more about any of our fund links please contact your Hansard Account executive who will be able to assist you further.

QROPS Advice: Investment News: Home prices in 20 U.S. cities rose in November

Home prices in 20 U.S. cities rose in November for the sixth consecutive month, signalling the industry that precipitated the worst recession since the 1930s is stabilizing. The S&P/Case-Shiller home-price index increased 0.2 percent from the prior month on a seasonally adjusted basis, after a 0.3 percent rise in October, the group said on Tuesday. The gauge was down 5.3 percent from November 2008, exceeding expectations and the smallest year-over-year decline in two years.

QROPS Advice: Investment News: France's growth may exceed forcasts

France's 2010 economic growth may exceed the government's 1.4 percent forecast, President Nicolas Sarkozy said. France's economy emerged from recession last year, growing 0.3 percent in the second and third quarters, and prompting the government to double its economic forecast. Sarkozy was more confident than his finance minister on employment, pledging an end to job losses in the "coming weeks, months."

QROPS Advice: Investment News: German business confidence rises

German business confidence rose more than economists forecast to an 18-month high in January as the global economic recovery boosted exports. Rising foreign sales, fuelled by Asian demand, may help offset a slide in domestic spending and ensure Germany's economy continues to expand. The government said last week it will raise its 2010 growth forecast to 1.5 percent from 1.2 percent even as some of its stimulus measures expire. Europe's largest economy shrank 5 percent last year, the most since World War II. Tuesday's report "laid to rest some of the concerns that the economy is running out of steam," Carsten Brzeski, an economist at ING Group said.

QROPS Advice: Investment News: Chinese banks have begun restricting new loans

Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month. The China Banking Regulatory Commission last week said lenders that failed to meet any of more than a dozen regulatory requirements have been told to limit lending. The watchdog said not all banks have been asked to rein in credit. "Five major banks we have contacted today all suggested they received instruction from banking regulators last week to slow down new lending, but not stop new lending," HSBC Holdings Plc economist Hongbin Qu said.

QROPS Advice: INVESTMENT RULES OF THE ROAD

Diversification. It's a core principle of investing. Don't put all your eggs in one basket, and all that. Multi-asset funds promise diversification at a stroke, because they invest in various asset classes rather than just shares, just bonds, just property and so on. But you still need a manager who knows what he's doing. Call 0044 (0)1664 444625 for professional impartial advice.

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QROPS Advice: Investment News: UK economy out of recession

The UK economy has come out of recession, after figures showed it had grown by 0.1% in the last three months of 2009. The economy had previously contracted for six consecutive quarters - the longest period since quarterly figures were first recorded in 1955. There have been recent recovery signs - last week UK unemployment fell for the first time in 18 months. Bank of England policy makers will study the data as they assess the strength of the recovery and decide next week whether to halt bond purchases and prepare to withdraw emergency stimulus measures.

QROPS Advice: Finance News: Obama Bashes The Banks

President Obama appears to have developed a grim determination to bash the banks. During this month he has announced two major schemes that will hit them hard - a $90bn (£56bn) levy over the next decade to grab back the government cash used to prop-up US lenders, and a plan to cut risk by stopping US banks from undertaking both consumer banking and riskier investment banking business. And the fall-out has already affected UK banks.
Share prices in all UK banks have fallen since the levy was announced in mid-January, with Barclays amongst the hardest hit - its shares are down 14 per cent since 18 January. That's because it's Barclays that could have the most to lose after buying Lehman's north American investment banking operations. Indeed, some analysts think Barclays could yet be forced to hive off its Barclays Capital investment banking arm altogether, meaning the loss of a major growth centre. Meanwhile, Royal Bank of Scotland’s (RBS) plan to sell its US commodities trading arm, Sempra, to JP Morgan for about £2.5bn could now run into difficulties.
And while none of the UK's lenders received any direct state support from the US banking bail-out, they must also contribute to Obama’s levy - as much as $10bn in total over the next decade according to broker Execution Ltd. The broker reckons that Barclays could face a $5.6bn bill, HSBC co uld be hit for $3.8bn and RBS could have to pay-up to $1bn.
But while Obama's plan to split retail and investment banking has received support from Bank of England Governor, Mervyn King, the government here remains lukewarm. The UK government prefers tougher capital requirements and 'living wills', setting out how banks can be broken up in a crisis without state help. City minister Lord Myners reportedly said: "I don't see anything in the Obama proposals which makes us want to change our line of travel." And rather than a US style levy, the government continues to favour an internationally-coordinated tax on financial transactions.
by John Adams

QROPS Advice: Investment News: IMF Warning

Countries have emerged faster than expected from the global recession, but the International Monetary Fund warned on Tuesday that managing post-crisis growth is becoming complicated by the divergence in advanced and developing economies. The IMF presented a brighter outlook for this year, with the world economy forecast to expand at a 3.9 percent pace instead of the 3.1 percent estimate given in October. Global growth is expected to continue to pick up in 2011, with the forecast edging up to 4.3 percent from 4.2 percent.

QROPS Advice: Investment News: Easing off the property rally

Thursday 4 February sounds like an unremarkable date. However, economists fear it will be the day the mini-boom in the UK commercial property market comes to an end. Why? It is when the Bank of England's Monetary Policy Committee is expected to call a halt to its £200bn programme of quantitative easing (QE).
Crudely described as 'printing electronic money', QE has pumped cash into the economy through the purchase of government bonds and corporate bonds in the hope this will inject liquidity into the financial system.
Since March 2009 when the programme started, £200bn has been spent on this artificial prop to the economy. The knock-on effect for both commercial property values and the FTSE 350 Real Estate sector has been extremely positive.
QE made property look cheap. The principal side-effect of QE has been a weaker pound, meaning foreign investors have enjoyed a 'double discount' on UK property through the currency advantage. Currently, foreign buyers account for around 80 per cent of all commercial investment transactions.
Another partial consequence of QE, low bond yields, means property returns are also attractive to funds and institutions, who have all come back into the market. Increased demand for property assets from cash-rich buyers has caused values to rapidly inflate, with the industry benchmark IPD Index registering a record monthly rise in December.
However, there are gro wing fears that the suspension of QE will stop the nascent recovery in its tracks.
Written by: Claer Barrett

QROPS Advice: Investment News: Playing with BRIC's

Sanjeev Shah, fund manager of the Fidelity Special Situations Fund, buys into the longer-term emerging markets story, but does not believe that commodities are the best way to play it.
Playing the BRICs
"I am not a believer in the commodity story and have a more negative view than some on the demand/supply balance for commodities," says Mr Shah. "Leaders in the first part of a bull phase are rarely in that position in the next phase."
Mr Shah regards mining stocks in particular as "value traps" on the grounds that there is potentially a lot of momentum in the name, but their valuations are not supportive. "The price to book ratio on these stocks is at a 50-year high driven by sentiment because of their emerging market exposure," says Mr Shah. "I only think that a stock is a good investment if it has long upside potential, and in the case of miners it is not there."
As oil stocks, in particular exploration and production companies, did well in the early part of 2009, Mr Shah reduced holdings.While he still has some exposure in this area, given that valuations here are better than for miners, he adds: "I do not have a high level of conviction on this for 2010/11, as the stock market has re-rated a lot of commodity producers to historically high extremes. For emerging markets exposure I prefer to buy franchises outside the commodity s pace."
Examples include FTSE 100 advertising and communications agency, WPP, which Mr Shah says generates around 28 per cent of its revenue from the BRIC economies (Brazil, Russia, India and China). WPP has also not participated in recent equity rallies, and fits in well with Mr Shah's investment approach, which he describes as a "strong contrarian philosophy".
Identifying special sits

Mr Shah identifies a special situation by keeping his focus on valuation anomalies - stocks which he considers to be materially mis-valued - 25 per cent or more. "I look for stocks unloved by the sell side and other investors, and opportunities which represent recovery situations," he explains.

This will often include mis-priced growth, takeover potential or a hidden aspect, which could include an unnoticed division within a company, or an aspect of its business model and how it is developing. "Yell is perceived as a print directory, but 25 per cent of its revenues comes from online activity, while it also provides leads for small businesses," says Mr Shah.

In terms of merger and acquisition activity (M&A), there could be some opportunities ahead. "M&A is at historically low levels, but there are improvements such as the availability of financing via debt markets. I expect there will be more appetite," says Mr Shah. "Examples of stocks which could be taken over include online gaming stocks."

Special situation investing can often mean a sacrifice of shorter-term returns, as companies take a while to turn around. In 2008, the Fidelity Special Situations outperformed its peers in the UK All Companies fund sector as well as the FTSE All-Share. However, in 2009, the fund got left behind with just under 29 per cent - as opposed to 30 per cent for the sector and All-Share.

Over the last year to 20 January, the fund is ahead with nearly 45 per cent, compared to 38.8 for the sector.

Favourable conditions

Mr Shah adds that while the fund's mandate and flexibility allows him to adjust to different market conditions, at present the environment is very good. "This is because valuations are still cheap relative to history, although they were much cheaper in 2009, and investor sentiment is still negative. There are some good bottom-up opportunities and we are finding things we like," he says.

The fund has a large position in media stocks which accounted for nearly 18 per cent of assets at the end of November. "These had been weak for around 10 years because of the online threat and fragmentation," says Mr Shah, "but BSkyB and Pearson offer growth at a reasonable price, while Yell is a recovery situation".

Mr Shah also sees some good organic growth potential among certain technology stocks in which the portfolio is overweight. "Technology had its own crisis during the tech bubble at the turn of the Millennium, but has done better in this crisis because these companies' balance sheets are now robust. Among small caps, I own around 8 per cent of Kofax, while I also hold mid-cap Logica (one of the fund's largest holdings), which has turned around under new management and could be involved in takeover activity."

In late 2006, Fidelity Special Situations gained Ucits III powers to use derivatives. Mr Shah comments: "Special Situations is a long only fund in the main, however, through using derivatives selectively I have added value. I short individual stocks and am short on 10 in the portfolio currently, which account for around 5 per cent of the overall value of the fund."

At times, such as early 2008, Mr Shah will also buy put options and has shorted the mid-cap index. He says: "If I become more negative I will do this again, but do not plan to do it at this moment in time."

by: Leonora Walters