LONDON, 19 July 2004 — There is a semblance of complacency now settling into the market, and fund managers are becoming more cautious in making bold moves in their portfolios. Those who believe in the bulls continue to buy stocks, the bears continue to shy away. Precious metals remain an attractive investment despite the recent volatility, while the bond market is clinging to the economic theory of sustained low interest rates, at least in the short-term.
We have witnessed a roller coaster performance in the stock market mainly in reaction to interest rate hikes, albeit mediocre, and to the more than projected corporate earnings. No wonder, then, value-oriented investors where having trouble finding good picks at all in what they see as an overheated market.
In the bond market, jitterness mixes uneasily with complacency. The view is one of modest growth and inflation period. Long-term rates are going to be fairly stable, but there is some room for short-term rates to rise. We would expect to see a strong high-yield market for the next couple of years, as there is nothing standing in the way of credit improvement for a good, slow-growth economy.
If you, the investor, are having any doubts about the course of the market, I have a few suggestions that can help you whether you are a bull or bear.
The first of these suggestions is to use the “transitional” phases in the market to review your portfolio and sort out your winners and losers. You should not be reluctant to sell an appreciated security even at a very small profit. I never knew anyone who went broke taking a profit. As an added comfort measure, review each security and ask yourself if you would buy this stock today, given the available information on the security.
Here where the investor revert to his fund manager for the appropriate research and analysis of the respective security. The response he receives from the manager would ultimately effect the extent of the latter’s knowledge of the market, and his understanding of the relative industry for that specific security. It is rather a test of confidence!
Managers, in ideal situations, should work closely with their clients to provide them with more tools so that they can build the confidence they need to make the right decisions in an ever-more sophisticated and demanding market. The cardinal rules and the primary selling points for all managers are simple and, in most cases, constant: price, convenience, service and comfort.
The relationship between fund managers and investors is constantly evolving. New things are always happening. Remember, this is not an old business and it almost exists to be innovative, to bring new ways of investing easier, at less cost, and more conveniently.
What do investors really want from their fund managers? The majority of investors are very much concerned about the firm they do business with, not only with how well they are taken care of, but also whether it is well established, well capitalized.
In essence, fund managers should offer a satisfactory acceptable level of comfort and confidence, and should also prove to their clients that they are putting their money where their mouth is. Clients seek a sense of protection delivered by the fund managers, and they will always try to differentiate them on the basis of approach, service and performance.
The overall general approach should be an objective one. Fund managers should not only offer investment advice to their clients, but also provide them with objective information, in great depth, with fingertip access to help them sort through the plethora of investment funds, many of them are relatively new and untested. They should be able to inform their clients how the fund performed in down markets and up markets, what the beta is (for risk assessment), the major components of their portfolio, etc. in other words, provide them with specific and current information.
Fund managers, in the process of enhancing their relationship with clients, must adjust to the clients’ appetite and need for smart and new investment ideas, by expanding the list of services to include, for example, cash management, asset allocation, and reinvestment strategies.
They have to demonstrate sensitivity to the investors, regardless of the portfolio size and their special needs. Therefore, confidence in the information they receive and comfort with technology, would enable the investors to make intelligent choices among those specific services.
Confidence, price and speed are the main elements in performing a compatible service, and speed is taking on more and more importance. Investors get all the information they need from various sources, but now they are all into instant gratification.
They want to call up and say “Buy it”, know that it is being bought that very moment. Then they want to know that they have bought it, that they are in.
Generally speaking, there is a learning curve for fund managers to apply to what they can give their clients, rather than what they can take from them. Building confidence would require drastic initiatives by fund managers to position themselves to be in the right light with their clients. In a few words: Improve capabilities for better fund management when it is convenient for the client, not necessarily when it is convenient for the fund manager.
(Habib F. Faris is vice president at Clariden Bank, London.)
