Bolton: Don’t Chase Past Performance
A keynote address by Anthony Bolton, acclaimed manager of the Fidelity Special Situations Fund, was a highlight. Bolton, who will step down from his portfolio management duties at the end of the year, gave attendees an insight into how he assesses companies in order to unearth the investment opportunities that have helped him develop an outsta
nding track record at Fidelity since he started managing money there in 1979. While hesitant to discuss too many specific positions currently in his portfolio, Bolton revealed that he had been adding to positions in the beleaguered financials sector of late. He also noted that utilities and tobacco look expensive, whilst he has been finding more value in large-caps. This is borne out by the portfolio we have collected for Fidelity Special Situations.
Ibbotson Positive on Equities, Bearish on Property
The Conference also heard from Roger Ibbotson, founder of asset consultant Ibbotson Associates and CIO of hedge fund Zebra Capital Management, on his outlook for the market. Ibbotson is still positive on the overall outlook for equities, as he feels equity market valuations are still reasonable and earnings remain solid. He believes oil prices will continue to rise, as global demand from the US, China and India continues to outstrip supply, and that the current credit crisis still has a way to go yet, with further weakness in property markets a distinct possibility.
A New Way to Think About Fund Performance
Morningstar’s Managing Director, Don Phillips, gave an insight into a study that Morningstar has done in the US on the returns a typical investor in a fund actually achieves versus the reported historical performance of funds. The study found that investors often make their entry and exit into and out funds at the worst possible times, typically buying after a period of sustained outperformance, and selling after a period of sustained underperformance. The study found this to be particularly true in volatile asset classes with a narrow focus, like sector funds or emerging markets funds, a prime example being the investors that were piling into internet or technology funds in 1999 or early 2000 at the top of the tech boom only to sell out in 2001 and 2002, missing most of the upside but suffering most of the downside in the process. However, the pattern also holds when examining the most and least volatile offerings within tamer categories. The key lesson for investors from this study – looking at a fund’s recent performance is a very poor method of selecting funds for your portfolio!
Blackrock: More Sub-prime Pain Coming?
Blackrock’s CIO of Fixed Income, Keith Anderson, shared his outlook for the global bond market with the audience. With the recent turbulence in credit markets particularly topical for investors, Anderson believes that the worst is still to come. He argued persuasively that the unsustainable growth in US household mortgage debt and the level of mortgages due for upwards interest rate resets in 2008 could trigger a significant downturn in US housing prices. If that occurs, it would have major ramifications for US economic growth, and follow-on effects throughout the world. Anderson feels the best opportunities in bond markets currently are in high quality issues, where he believes the spreads have widened too far and don’t reflect the actual credit risk of the issues. For a more detailed discussion of Anderson’s talk, click here.
UK Property Managers Cautious
With an uncertain interest rate environment and slowing property market as a backdrop, Morningstar UK’s Director of Fund Research, Chris Traulsen, moderated a panel of property portfolio managers to discuss their outlook for the sector. New Star’s Marcus Langlands Pearse and M&G’s John Cartwright, who both manage direct property portfolios, agreed that yields in the sector had become too low, but that a focus on quality property, particularly London office and retail, would help limit the downside as demand for quality space and rental growth are still apparent. Standard Life’s Svitlana Gubriy, who helps manages the shop’s Global REIT fund, shared her thoughts on the opportunities available in property sectors outside the UK, with a particularly bullish view on Asian property markets with the growth that is occurring in that region.
