Bulls sniff the air as signs of a turnaround emerge

Comment: bulls sniff the air as signs of a turnaround emerge

Take a glance at the most popular funds sold this year and you quickly get an idea of the mindset of investors – it is one of caution. Cash and corporate bonds have been the order of the day.

By Paul Farrow
Last Updated: 8:22PM BST 01 May 2009

It always takes a brave soul to go against the crowd. It takes an even braver soul to take a punt on riskier assets in today's grim climate.

But you begin to wonder whether investors have got their timing wrong – again. I say this because the first month of our Fantasy Fund Manager competition has shown some staggering results from equity-based funds.

More than 98pc of the thousands of players who signed up at the beginning of April to play the year-long portfolio game and a chance to win £50,000 have delivered a positive return so far. The average gain is 4pc. The portfolios of more than a dozen are up by more than 15pc, with the leader of the pack up by 24pc.

The performance of some of the actual funds during the first month may also surprise you. The F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc. Believe it or not, a commercial property trust rose by 30pc.

One of the reasons for the bumper gains is that these leading funds are investment trusts, whose share prices have been trading on large discounts to net asset value because confidence had hit rock bottom.

When such a trust has a reversal in fortunes, it gives an added boost to the share price as the discount narrows on the good news.

But the past month's numbers also go to show that there is money to be made, despite the severe recession, and that not every company is a busted flush.

Confidence is often the overriding factor when it comes to share price movements, rather than company fundamentals.

The outbreak of swine flu gave stock markets the jitters before the first person in the UK had been diagnosed. The initial volatility, which subsided, had nothing to do with profits and losses.

There have been gloomy forecasts since the financial crisis first reared its head more than a year ago, but the stock market optimists are slowly beginning to be bolder and more open in their thoughts. For some, the worst may be over.

Certainly, Gervais Williams could hardly contain his excitement when I spoke to him last week about his fund, Gartmore Fledging Trust (which invests in the smallest companies in the FTSE All-Share). "It is an astonishing portfolio of unloved companies. Many are trading at 20pc to book value, huge discounts with yields of 9pc."

Mr Williams is seeing opportunities in well known businesses that have been relegated to the bottom of the FTSE in terms of size, but could return to former glories. He cites JJB Sports, the recession-hit sports retailer, as an example. Its share price was around 3p but it is now trading at 23p after it announced an agreement that could secure the company's future. That the FTSE100 closed the week at an 11-week high has also led to expectations that we are about to enter a bull market.

Anthony Bolton reckons that we may already be in the first days of a bull market. He is worth listening to. Mr Bolton, you may recall, is as close as you will get to a fund manager having the Midas touch, turning £1,000 into £147,000 over 28 years.

He says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".

Mr Bolton correctly called the end of the commodity bull run last summer and anyone who heeded his advice then will have been saved from a mauling.

The majority of fund managers and equity analysts have, until know, been reluctant to call an end to the bear market. Many still won't and there continues to be far more stock market bears than bulls out there. But it gives us reason to hope.

Lies, damned lies and statistics
Last month, Nationwide said that house prices rose by 0.9pc. As I have said before, house price indices can be unreliable. Nationwide, for instance, uses its own mortgage-offer data and takes figures used in the previous month.

That's not all. The Nationwide index is seasonally adjusted, rather than showing actual price changes. If you look at the real price change, prices actually rose by 2.2pc in March, not 0.9pc, according to Ray Boulger, the mortgage expert from John Charcol.

Mr Boulger admits the housing market is seasonal but says that there are so many other factors, such as the availability of credit, confidence and interest rates, to consider too. And given the current conditions, they are extremely relevant factors in determining whether prices have fallen and by how much.

Nationwide said last week that its seasonally adjusted figures show that prices fell by 0.4pc in April. But if you want to enjoy the Bank holiday on a more positive note, look at the "real figures". They show house prices rose by 0.6pc.

http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/5258390/Comment-bulls-sniff-the-air-as-signs-of-a-turnaround-emerge.html


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