Market losses deflate: S&P

Simon Ibbetson

Recent market losses can be seen as merely an unwinding of some of the exuberance of the past 18 months as long as corporate profits remain strong and defaults low, according to a new Standard&Poor’s research report.

The Asset Allocation report for July, 2007, found that high levels of cash on corporate balance sheets should also mitigate the prospect of a more serious and extended ‘credit crunch’ affecting profits across the economy in the near term.

The report also found that investment skill is becoming an ever-more valuable commodity as markets have continued to remain volatile and investors ponder whether the latest cycle has run its course.

Investors can now get exposure to most traditional markets (or beta-type risk) very cheaply, leaving an investment manager to concentrate on providing ‘alpha’ or skill-driven returns, Simon Ibbetson, director of investment consulting, said.

“We believe that it is possible to find managers that outperform the market, but this task is made much easier with if you are not constricted in where you look.

“This is particularly relevant as most investors wish to, or have to, concentrate their market exposure, in the most efficient markets where it is most difficult to add value.”