Gatekeepers

The first day of the Chinese New Year, also known as the Spring Festival or the Lunar Near Year, fell at the weekend on Saturday 25 January. It also heralded the start of the year of the Rat, the first in the 12-strong Chinese zodiac.

It feels like I've been writing US-China trade wars and Brexit in investment commentaries since the Flood. Potential new investors have been spectating for months, waiting for resolution of these issues, particularly given 2018's annus horribilis where cash was king (if a less-than-generous one).

Jittery investors are rushing to buy gold and government bonds as the threat of a global recession sparked by Trump and his trade wars intensifies. Such is the fear that according to Deutsche Bank, investors have apparently invested US$15trn (25% of the total bond market) in negative-yielding government bonds — a number that has tripled since October 2018.

Now that Boris Johnson is the Prime Minister, the possibility of crashing out of the EU on 31st October looms large on the horizon. It would be no surprise, therefore, if advisers and investors turned to so-called safe havens like property.

Every Tom, Dick and Harry has had a pop at Neil (yes, the villain has a first name) Woodford over the last few days. Countless rent-a-mouths have queued up to drizzle us with their schadenfreude (most know nothing about funds). But while they like to claim they saw it coming, they conveniently forgot to warn the rest of us. 

Over the last decade, a key feature of the retail investment landscape has been the industry’s development of risk-grading as a response to the suitability issue. How do advisers and their clients best ensure that the portfolio selected for them is most likely to produce the capital appreciation and income provision they expect, with the fewest surprises?  In other words, what is the risk that they don’t achieve their goals?  That risk has been distilled down to a single figure on a risk-scale derived from a portfolio’s expected standard deviation of returns, also known as volatility.

Gatekeepers tend to select single-strategy funds as building blocks in broader portfolios, so the presence of multi-asset funds on gatekeeper lists is usually to cater for one-stop shoppers on D2C platforms, for ISAs for example, or to satisfy the needs of smaller investments through advisers where they may be aimed (unfairly) at so-called less-sophisticated investors.

Proponents of the passive, index-tracking approach to equity investing often make their case ­­­by underlining the efficiency of stock markets. This is especially true of the US, where research and the speed with which information is translated into price movements can make stock selection a pointless exercise.