Negative vibes hit all our IFA hopefuls

Published on Monday 23 June 2008 10:27

"NEGATIVE Territory": it sound like the title of a rock band, or a new Hollywood blockbuster.

But "negative territory" is fast becoming familiar to many investors.

It's the crimson terrain where the value of your portfolio is below the acquisition or starting cost.

And that, regrettably, is where the five IFA portfolios featured in our competition review this month find themselves.

Back in April and early May, the stock market looked to be building a solid, if fitful, recovery. The worst of the global credit crunch appeared to be over – and was so pronounced.

But along came soaring oil to make the control of inflation the central bank policy priority. Further interest rate cuts – on which hopes of avoiding recession rested – have been taken off the table, to be replaced by the prospect of rate rises.

Meanwhile, company earnings are suffering from a toxic combination of rising costs and falling demand. The news flow has been almost uniformly bad and confidence is being shaken.

Markets both here and in America have tumbled on prospects of a sharp and severe earnings downturn. These are the most testing conditions for our IFA portfolio managers.

The two crumbs of comfort to be drawn are that investors with a broad selection of funds are faring much better than they would be had they been holding shares directly. – particularly those driven down by short sellers.

And all the portfolios have a significant proportion invested in countries and markets where the downturn has not been nearly so severe. The hope is that the oil price will top out before long, allowing central banks to step back from the brink of interest rate rises.

That alone would provide a big fillip to confidence. It cannot come soon enough.