UFO Info Week-End

I remain hopeful about the company’s medium-term prospects because of its recent diversification and new stress on non-clothing ranges such

I remain hopeful about the company’s medium-term prospects because of its recent diversification and new stress on non-clothing ranges such as food. But the real star performer was Logica CMG, the technology consultancy, up 70 per cent on where I bought.The portfolio’s top dog of a share was Marks & Spencer, which continues to disappoint. Even so, my advice then was to keep on buying, which I did for the first few months of the year and I have managed to make some money, on paper at any rate, for the first time in two years.This is mainly because I bought into some of the deeply unfashionable stocks of a year ago, especially in the telecom sector: Vodafone, MMO2, and Cable & Wireless all came through for me over the year. The reasoning was simple: look to your own feelings and those of other investments. If you then think things are at what Charles Kindleberger described as the “revulsion stage”, when no one thinks prices will rise again, that is the best buying signal of all.I was nearly right, but I did not foresee that the severely bearish episode in recent stock market activity had not yet reached its nadir, which was not to arrive until 12 March.

Not only is it imperative to monitor the costs of any investment vehicle you are persuaded to purchase, you also need to monitor very carefully whether the service you are getting is worth what you are paying for.jd intelligent-investor.co.uk. Consequently the average fund management firm is now, for the first time in many years, reporting similar levels of profitability to the rest of the financial services industry.The lesson for investors remains as true as ever. Writing in this space a year or so ago I asked whether we were at the point of meltdown or the sale of the century The answer was both. Meltdown because the FTSE 100 index, which started the year at 3,940.4, fell to an eight-year low of 3,287 by March; and sale of the century because from that low point it finished where it did on Wednesday at 4,476.9, 13.6 per cent up on the year and more than a third up on its low point.
At the beginning of last year I made the slightly rash prediction that equity markets were near the bottom. Many firms have cut costs in response to the continued bear market, but costs in general continue to rise.

The latest figures from the Investment Management Association, the fund industry’s trade body, show corporate bonds continue to be heavily pushed by direct-sales forces and intermediaries. Experience suggests that where the sales forces are most busily shifting stock is rarely the best place to put your money, and frequently the worst. But general equity funds are again more back at the top of the list of best sellers, though net sales are running well below the excep tional years of 1999 and 2000.A less surprising statistic from the last McKinsey survey of European fund management performance, is that the British fund management industry continues to spend more on marketing than almost any other country in Europe, one reason why its profitability is now the lowest. (In some ways the more interesting question is where are they now?) What I don’t detect are signs of bubbles developing in any major asset class, but no doubt these will emerge, and probably out of a clear, blue sky, as normally happens.I have also been monitoring the statistics about fund sales and industry profitability.

I do not yet have a feel for that, except to say that if bond yields rise further and more quickly than the market expects, it will present interesting options for those who rightly focus on real (after inflation) returns. At present, the case for bonds still looks thin, and I see no evidence that the US stock market is not still significantly overvalued on fundamental grounds. Other markets remain more attractive on a valuation basis.The other big issues for the New Year seem what happens to commodities, where I suspect the growing consensus that they could be entering a new secular bull market will for once be right, and, more immediately for UK investors, the continued conundrum about where property prices are heading over the medium term. If growth can be maintained at its present above-trend rate, which is by no means yet certain, there is a risk that the cycle of interest rates will tighten harder and faster than most investors seem to be assuming.True, the signals from the US suggest the Federal Reserve is doing its normal job of (how should we put this?) accommodating the electoral ambitions of the incumbent President, while adopting a more than relaxed attitude to the continued decline of the dollar.I think the hardest call of the year is going to be what is going to happen to interest rates across the whole term structure. This in turn is reflected in the glaring fact that 2003 was a year when junk did better than quality in almost every market.But I am sure I am not the only one who has noticed there is something of a contradiction in the assumptions that underlie the comfortable prognosis, and the validity of the “low interest rate, strong growth” thesis will therefore need carefully watching. Strong growth and a slow return to tighter monetary conditions, if both assumptions prove to be well founded, should be conducive to another reasonable year in the stock markets, where appetite for risk has been steadily returning since the lows of last March. Quibbles about methodology aside, I think that this is the case, though for many fund managers the feeling may in part simply reflect relief that they are still holding down overpaid jobs after the traumas of the previous three years.Most fund managers appear to be looking forward to continued strong economic growth in 2004, led by the US, where easy money remains the policy du jour and there is still an election to be won or lost (don’t discount a Bush victory at this stage).