25/01/08

market VOLATILITY

Market volatility is not a new thing. As the attached pdf shows you there have been upsides and downsides over the last 25 years but equities have continuously weathered fluctuating market conditions to outperform bonds and building society accounts.

Why equities make sense - PDF link

Source: JPMorgan Asset Management

24/01/08

Equities - the ability to invest in volatile markets

Many investors are reluctant to invest new money when they see volatile markets such as we have at the moment. However they also hear "now is a great time to invest as the market is down". So is now the right time to invest or should an investor keep their money in cash?

If you believe that equities will outperform assets such as gilts and fixed interest over the longterm as we do, it is possible to invest when the market is volatile without needing to commit a lump sum.

No need to time the market

We invest client money for the long term so we do not believe in market timing. Regular investing removes the need to get the timing right. Regularly investing small amounts of money into the market means you can benefit from something known as 'pound-cost averaging'.

Pound-cost averaging: An illustration

If you invest a monthly sum of £100 into a fund in a month in which the market falls, you will get more shares for your money. If the market rises, you will of course purchase fewer shares, but your existing shares will also be worth more. Over the long term, this means that the average price of the shares you hold may in fact be lower than the average share price for the investment period, since you have bought more shares when the price is lower and fewer when it is high.

Splitting a lump sum investment

A similar principle can be applied if you have a large lump sum to invest. If you are concerned about volatility, it may help to split the sum into several monthly instalments and 'drip-feed' it into the market. This reduces the need for perfect timing, and means that you remove the risk of investing everything when the market is at its peak but are potentially able to take advantage of a market on the rise again.

Please note that past performance may not be repeated, therefore it shouldn't be used as a guide to future performance. The value of the investment can go down as well as up.

23/01/08

Fund selection

A recent survey asked IFAs about whether they would follow a fund manager or a product provider when selecting funds for their clients.

The results indicated that over 50% of IFAs would follow the fund manager, which was an increase of 10% since the question was asked the year before. Nearly a third of responses suggested that they looked at neither. We found these results interesting but thought perhaps that an option in the questions had been missed - about performance. Here at Argyle we don't simply follow a fund manager or a fund because it comes from a certain fund house - we look at a combination of key factors within our research process. Just picking a fund on the back of a fund manager just seems a little hap-hazard way of managing a portfolio of money to us. To find out more about how we manage money, please click this link.

A point of note - when asked which fund manager in particular they would follow the name of Neil Woodford at Invesco Perpetual came out on top by some way. He is an extremely well thought of fund manager looking after nearly 60% of Invesco Perpetual's total assets under management. Our research process ensures that he appears on our income fund panel due to his performance track record and his risk and return figures - not just because he is a star fund manager.