What normal feels like

WHEN the announcement came last week that interest rates would not rise, what should have been good news for home owners was stained by a less than subtle threat by the Reserve Bank about the future direction of monetary policy.

The Reserve’s message was loud and clear: interest rates may have remained steady for now, but in three months time, all bets are off.

The way the Reserve’s announcement played out last week was remarkably similar to what is happening in the world of investment management.

As well as the statement on interest rates, advisers would have been paying close attention last week to the release of the first figures on the performance of funds management markets for the month of January.

After a year of stellar outperforming on the domestic equity market in 2004, most experts are predicting a softer year for 2005 — and so the January figures were the first real chance to glean exactly how the markets were tracking.

So what happened?

In a repeat of last year’s trends, Australian equities led the way, returning 1.4 per cent for the month. If the figure was to be stretched across 12 months, the return even for an average Australian equities manager would be 16.8 per cent — hardly the downturn some may be forecasting.

Not only that, the result was bolstered by the strong performance of the listed property and small caps sectors — two parts of the market whose extraordinary run many are predicting will come down to earth with a thud in 2005.

But despite what appeared a relatively healthy result on the surface, few were prepared to shout the figures from the roof top.

Just like the Reserve Bank, the investment community was more interested in issuing a warning.

The headline of a statement issued by one consulting group said investors were being “reminded of what normal feels like”.

The message, again, was loud and clear: January may have seen a continuation of 2004’s very good times, but don’t expect things to be necessarily as good for the remainder of the year.