Closing Bell: Lost in translation: what your fund manager means

Many investors will this month be perusing reports from their adviser, broker or fund manager that review 2010 and look ahead to the year to come.

These reports are often masterly distillations of investment wisdom, setting out in clear, simple language the manager's view of markets, what he has done, how the investments have performed and what is expected to happen.

Unfortunately, however, this level of clarity and relevance is rarely achieved and many people read their reports with a sense of bafflement. Since the investment industry's existence can only be justified by the fact that the professionals have more knowledge and understanding than the clients, the potential for misunderstanding is always there.

It is also true that many investment topics are both unavoidably complicated and fiercely debated.

A less respectable source of confusion is that managers are prone to overuse jargon and to hide behind clichs - having been guilty of both these faults myself I should like to apologise on behalf of the profession. By way of penance, I will lift the veil a little by translating some well-worn jargon into English:

"Macro-economic factors are now arguably well reflected in the risk-reward profiles of the major asset classes, although the scope for geopolitical disruption remains a cause for concern. In this environment careful stock selection will be a key driver of investment performance."

The above means: "We're not really sure what's going to happen in the markets in the short term, but then again neither is anyone else. No company you've heard of has gone bust for a while and the brokers we speak to seem pretty happy, so our best guess is that things will continue to trundle along in a broadly positive direction, but don't hold us to this if the Dear Leader or the ayatollahs start firing. Meanwhile if we stick to sensible businesses at fair prices we should be all right."

"During the period under review, your portfolio outperformed significantly. The fundamental strengths of the holdings selected by our rigorous investment philosophy are coming to be more widely appreciated in the market."

For this, read: "Takeover bids for a couple of our big holdings didn't hurt."

"During the period, your portfolio rose in value but was modestly behind the benchmark. In a momentum-driven environment the quality long-term investments which our fundamental research process identifies tend to lag the market as speculators chase short-term gains in the shares of weaker businesses. We do not think these conditions are likely to persist and we do not want to compromise our investment style by chasing stocks which are enjoying a brief burst of popularity"

"Aren't these grapes sour?"

"Technical indicators suggest that markets are well supported at current levels, with some potential for a breakout on the upside."

"One of our analysts has a ruler and a pencil."

"Wide-ranging thematic analysis allows us to identify and benefit from key global investment themes."

"We read the same information as our competitors."

"We continue to draw on the world-wide resources of our parent group to provide our clients with access to the widest possible range of sophisticated investment solutions, which make full use of modern efficient portfolio management tools."

"There's a bunch of bright guys at head office who spend their time devising ever more complicated products."

"In future you will notice improvements in the way we report to you, as a result of significant investment in our systems."

"This whole project has cost a huge amount of time and money so it had better work, but we're not going to go live until the IT boys have finished spending evenings and weekends debugging it."

And finally my personal favourite:

"Recent strong performance vindicates our policy of buying and holding quality investments for the long term, thereby avoiding the costs and the volatility associated with excessive dealing and short-term churning."

"Rather embarrassingly, the periods when your portfolio was almost completely inactive have also been the periods which saw the strongest performance."

• Gareth Howlett is fund manager director at Brooks Macdonald Asset Management.