Ship a lot steadier in the water but not safe in port yet

Published on Monday 23 June 2008 10:17

THE five IFAs featured this month are all in negative territory, with Angus MacDonald's portfolio worth less it was when we kicked off the competition in January.

But in all cases performance has improved since April, whether through portfolio tinkering, weightings adjust-ments or on the back of growth in their core investments.

One theme is a reduction in exposure to the UK, generally in favour of more global funds or sectors such as commodities and natural resources.

Indeed, funds investing in UK companies have suffered recently, with the UK All Companies, UK Equity Income and UK Smaller Companies sectors among the worst performing investment sectors in that period. In contrast, funds exploiting global opportunities – whether in emerging markets, Asia Pacific or even Europe (excluding the UK) – have suffered a gentler fall over the last 12 months.

In fact only Japanese Smaller Companies have lost more value than funds investing in UK Smaller Companies in the past year, perhaps suggesting the competitors moving away from UK- based investments might be making a smart move. But fortunes at the five-month stage could mean little come the end of the competition,

so will those IFAs adding more global flavour to MacDonald's portfolio come to regret it later on? Recent research from Merrill Lynch showed that many fund managers believe emerging markets are overvalued, while several economists are also warning of the problem posed by inflation in Asia in particular.

This is just one example of the problems and challenges faced by our competitors. Even experienced fund managers admit to being perplexed by the behaviour of world stock markets right now and say markets are being especially unpredictable in their response to various macroeconomic factors.

All this means that MacDonald is doubtless a bit concerned by the balance his portfolio is showing at the hands of our ex-perts and the rest of this year could give him plenty of cause for nerves.