Future returns not based on past lessons
Advisers and investors risked falling into the trap of applying the returns of the last few years into the future according to Frank Russell director of portfolio research Ernie Ankrim.
Advisers and investors risked falling into the trap of applying the returns of the last few years into the future according to Frank Russell director of portfolio research Ernie Ankrim.
He has been attempting to get investors to forget the huge returns which have dictated the market for the last few years and to remember the basic fundamentals of investing.
This is most strongly evidenced, according to Ankrim, in that some feel the need for further technology investment to generate solid returns.
“When looking at things people believe to be long lasting the truth is much of it is based on only three or four years of results,” Ankrim says.
“The result in this time period is that technology was second to consumer durables such as washing powder and tooth paste.”
Technology only ranked in the number one position once in five years and over 15 years showed a much weaker position.
Ankrim says investors and advisers naturally give more weight to recent events and influence over decisions and take that same approach forward.
Another area which has seen a shift was the emphasis on growth over value stocks and large cap over small cap.
“Our clients wanted to tilt portfolios toward growth and large cap yet in the early 90’s is was the complete opposite,” Ankrim says.
“However the underlying fundamentals don’t shift that quickly and the reality is no one knows what is coming next so don’t take huge positions.”
Advisers and their clients should find fund managers who perform well within their own style with advisers showing the wisdom of avoiding patterns of what is easy and popular.
These lessons are becoming less useful than they were at the beginning of this year, according to Ankrim, as the reasons for pointing them out change.
“In the future I plan to use this year as evidence of the rapid change which goes on with investments and hope investors refocus their ideas from getting rich to just succeeding.”
AUTHOR
Jason Spits
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