MONTHLY MERRICKS – It’s Tough Out There
Do You Believe?
I’ve recently heard about someone who has just retired from a career in investment fund sales whose first thing they did was to buy an annuity. Now, there is nothing wrong in buying an annuity if you require the certainty that they bring, but if you’ve spent your working life persuading others about the merits of the longer term benefits of equity and bond investment does this not suggest that maybe you didn’t actually believe in what you were selling?
It’s Tough Out There
Having spoken to a number of IFAs over the past few weeks there is one recurring message that’s coming through. It’s tough out there. In refreshingly honest responses I’ve heard that 2022 is perhaps the most difficult year to date to meet with clients who have paid not insignificant fees to be told that their net worth is lower at the end of the year than it started, fees notwithstanding. A common reaction has, apparently, been “But the FTSE 100 is up, so how can my investments be down?” to which the reply, “but you’re not really invested in the FTSE 100 and over the last decade or so you should be glad that you have not” has not been particularly well received.
I’ve also had contact with a number of investment professionals in recent weeks who have had a similarly bad 2022 experience, yet their reaction has been somewhat different. Not having to actually meet the individuals who have been directed to invest in their funds/models/portfolio services, they see a certain element of success in not having been as bad as some of their competitors. To be least bad is a victory. It made me wonder whether they would be as blasé if they were invested in their own propositions (as I’m sure many are).
Which begs the question once more….do you believe in the advice you are offering or in the portfolios that you run?
Bills To Pay
I am not so naïve that I don’t understand that we’ve all got bills to pay (ever increasing ones it seems) and I am not suggesting for a second that the industry is wilfully manufacturing rubbish products that will do untold harm to unwary purchasers. In fact, the opposite is true as most products appear to conform around similar processes and principles which tend to produce a certain blandness of outcome. Too much success can be frowned upon as being a consequence of taking too much risk. For many, performance seems to be of secondary importance to ticking certain boxes.
What To Believe?
So, what to believe? There is, of course, no definitive answer to this.
From an investment perspective, do you believe that active is better than passive or vice versa? Do you think that value is better than growth or growth is better than value? Is large cap more likely to outperform small cap over time or is it best to try to find tomorrow’s large caps today, while they’re small? Is the tortoise asset class that is bonds likely to ultimately outpace the hare of equities? The list can go on.
The Oxford English Dictionary defines belief as “something one accepts as true or real; a firmly held opinion”. Everyone will have their own opinion. Whether their actions match their opinion is not always clear.
So What’s The Point Of All This?
That’s a good question. I suppose this can quite rightly be called an opinion piece and if it means that one or two people take time to question their own opinions and possibly act upon them then it hasn’t been a total waste of ink. This does not have to be restricted to one’s portfolio but it seems a sensible place to start.
Personally, I believe in thematic investment.
There, I’ve said it.
Why? I like to keep things simple and it appears to me to make simple sense that if we invest in what the world wants and needs then we’re likely to reap reward from doing so. With the world appearing to be accelerating in its innovative development (see charts below) there are an ever-growing list of themes that appear to have relevance to our future.
As you can see from the charts, innovation and themes will change over time. Thematic investing will need to change with it. The flush toilet and the lightbulb were revolutionary in their day. In the same way, there was a time when cyber security was encapsulated by Arnold Schwarzenegger growling “I’ll be back”; when the cloud was that peculiar fluffy-looking blanket that covered the British Isles for most of the year; and when online shopping was simply phoning your kids to ask them if they could bring some sugar round with them when they came to visit for the weekend. But if you catch these themes early you stand to benefit from them, surely?
Is it always the right time to invest in themes? Most definitely not as 2022 bears testament. It was a terrible year for thematic funds such as the one I help to run – an absolute stinker. Do I retain belief in what it does and invests in? Certainly. Do I believe that now is a better time to consider investing in themes than it was 18 months ago? Without doubt. Do I believe that the market has bottomed and has either begun, or is about to begin, the next leg of a bull run? I have no idea.
I do believe that to invest everything into themes is bordering on insanity. By the same token, it seems equally peculiar to dismiss at least having some of a portfolio exposed to the themes that are going to drive tomorrow.
I believe it makes sense anyway. Not everyone will agree but different opinions will always help the world go round.
Andy Merricks is co-manager of the Margetts IDAD Future Wealth Fund