A question of timing for long-term value

As the first half of 2012 draws to a close, a number of investors will now be taking stock of their predictions and positioning going into the year and seeing whether they still make sense.

To judge by our first issue of the year, on January 9, their success will have been mixed. According to our front page, multi-managers tipped equities in particular. But although stockmarkets rose strongly in the first two months of the year, they would most likely have lost money if they had stuck with the bet until the start of June. Total returns for the first five months of the year were pushed into flat or negative territory for all the major stockmarket indices, with the exception of the S&P 500, which rose 3.66 per cent. According to FE Analytics, MSCI World was off 0.01 per cent, MSCI Emerging Markets was up just 0.03 per cent, the FTSE 100 was down 3.82 per cent and the DJ EuroStoxx 50 index was off 10.09 per cent.

Fortunately, as our multi-manager correspondent and chief reporter Bradley Gerrard reveals on page 33 of this week’s magazine, many multi-managers raised their holdings in cash and became defensive ahead of stockmarket plunges in May. Although their predictions for the year were perhaps a little bullish, they were quick to recognise that when the eurozone crisis worsened after the end of the first quarter. If nothing else, this will illustrate that advisers’ favoured multi-managers can act more dynamically to secure returns during times of market turbulence – even if the jury is still out on whether they can do it consistently.

So far, 2012 has been a more mixed year for economists. Most got it wrong on whether the UK would enter a double-dip recession, predicting we would avoid a second successive quarter of negative growth in the first three months of this year. Yet as our economics correspondent and senior news reporter Rebecca Clancy reported in the early part of the year, many of them expected markets to look roughly similar to 2011, with an initial rise followed by falls as slowdown bites. This has been borne out by data and stockmarket behaviour – buoyant at the start, but with worrying signs for the second quarter and the second half of the year. Strategists and investors are less easily fooled by market bounces than they used to be.

However, longer-term investors still face a conundrum. Due to wobbles in economies and markets, almost everyone recognises stocks are likely to represent excellent long-term value at some point this year.

The question is timing. In a column at the start of February, I mentioned that investors should hold off on piling into stocks because at some point this year stocks would look better value – and at the start of June they did.

The crucial question is whether we will see a better version of this opportunity later this year – a point I will address in my column next week.

Nick Rice is editor of Investment Adviser