26/11/07

JPMorgan article

Interesting article from Tom Elliott (Global Strategist at JPMorgan) arrived in our inbox today.

The key points of which are:-

The current market volatility reflects a re-pricing of credit markets, after several years of high prices and low yields. Our central case is that we expect the problems generated by this re-pricing to largely remain in the financial sector. Unfortunately attempts to quantify the total cost to the sector, or to anticipate when the crisis will end, is frustrated by the difficulty of knowing what proportion of the US sub prime mortgage market will eventually default, and how those investors who hold the risk will react.

Due to current market volatility it may well make sense for new money to be drip fed into the market....in money market funds. The money can then be fully invested when volatility comes down.

For existing stock market investors, in view of the trading costs incurred to your client by switching funds and the difficulty of knowing when to buy back into the market, we would advise holding existing stock market exposure. Current forecasts for GDP and corporate earnings growth, together with attractive valuations in many markets, do not support the case for selling.

The opinions expressed in this document are those held by the author at the time of issue and are not a recommendation to buy or sell any investment.

22/11/07

Threadneedle

We met up with Threadneedle in Liverpool this week to meet two fund managers that are not currently on our panel - Mark Westwood and Simon Haines. Both managers are UK Equity focused and are managing their funds in a defensive manner in the current climate. Mark in particular was favouring large cap stocks and those stocks in the Aerospace/Defence sector. He said when you know that solid companies such as Rolls Royce have a visible order book out for the next 10 years why would you not want to invest in that stock?

Both Mark and Simon expressed concern at the financial institutions and the lack of clarity in the marketplace as to what level of debt each company is holding. They were not surprisingly very pessimistic about the outlook for financials and are not looking to hold them in their funds given the lack of clarity. Mark in particular was concerned with the numbers of "bodies floating to the top of the water" with credit crunch affected numbers (Swiss Re being the latest)and said that this was going to continue. There is a rolling question;- who is going to be next and when?

We already have a number of Threadneedle funds on our panel in other areas but no UK Equities due to a poor performance record. The good news is that the UK performance appears to be coming back. Threadneedle have made some significant changes to their personnel and investment process over the last few years and according to their figures it seems to be paying dividends. Whether this performance makes any impact on our selection of funds will remain to be seen as all funds will be monitored as usual and we will select the best funds for our clients.

Overall a useful and well run meeting with good sessions by the fund managers.

21/11/07

Neptune

We travelled to Manchester to attend a Neptune meeting last week. Neptune are a fairly new fund management enterprise but are delivering some very impressive performance in territories such as the US and Europe. Around 15 selected financial advisers/brokers attended the lunch in order to meet two Neptune fund managers. Rob Burnett who heads up the Neptune European Opportunities Fund (which is one of our preferred European funds) and Chris Taylor who is responsible for the Neptune Green Planet Fund. Both gave very interesting presentations, in particular Rob.

Rob focused on a number of themes such as:

• not holding financials
• The fund being focused defensively on the large cap stocks rather the usual balance across large, medium and small caps.
• Old Europe (Germany and France) under pressure
• New World Order continuing to make a difference

Coming back into the office and looking further at Rob's recent performance you can definitely see where he has gone defensive and the positive impact it has made to the fund's performance against others in the sector. We would expect this to continue and will watch the fund as part of our research process.

Chris talked about the recently launched Green Planet fund which is not an ethical fund but one that is focused on the new industries and opportunities that "green" living brings. For example:-

• alternative, sustainable, renewable energy
• recycling and resource recovery
• waste management and purification

Two of the examples that he gave of work currently being undertaken :-

1) Mercedes are looking at developing an "air fix kit" car than can be glued together.
2) Car chips that control the electronics which can be taken out of the car to stop them being stolen. i.e. no chip no car movement = better security.

Again we will keep an eye on this fund but at present the fund performance isn't strong enough for it to make it onto a watch list for any of our fund panels.

7/11/07

Reducing Client holdings in Property

We are contacting our clients today to request the go ahead to reduce their property allocation to 10%. We have become increasingly concerned with the returns delivered this year from property funds and the outlook for 2008 from all the main players does not fill us with any real confidence. Recent returns from Property funds have been excellent, although for many funds this was because they had become mixtures of property shares and real bricks and mortar buildings with the volatility that implies. Events at Northern Rock and similar banks suggest that we are unlikely to see these levels of returns again for sometime. Property Fund Managers are already predicting possibly much lower single digit returns. Fund Managers are blaming this situation on a number of factors such as the recent credit crunch, lower property valuations and a general reduction of confidence in the property market.

We do not believe that clients should keep large amounts of their money sitting in assets expecting little or no return. Whilst we still fundamentally believe that property is an asset class worth investing in for the long term, we do not believe that it is sensible for clients to hold more than 10% of their portfolio in property at this current time. We feel that it is worth moving money out of property now and inline with our asset allocation model reinvesting it in assets with brighter prospects, such as overseas equities.