As we approach the end of the tax year we can still expect investors to be focused on more cautious assets, although perhaps with signs that some are now dipping their toes into riskier areas, particularly if markets continue to push upwards.
As any IFA will tell you, the right approach, of course, is not a particular asset class or fund but rather having the right mix of investments to meet a client’s overall financial objectives and attitude to risk. Unfortunately those investors who make their own decisions without having an IFA to guide them often do not appreciate this and make investment decisions based on short-term past performance and driven by greed or fear. This is why we saw increased interest in gilt funds toward the back end of 2011.
So for those advisers looking to utilise their clients’ Isa allowances for this tax year and also to invest next year’s allowance shortly after 6 April, and particularly for execution-only brokers that experience more of an “Isa season”, we can expect continued demand for perceived low-risk assets and funds. Other than cash, this will include cautious managed, absolute return, corporate bond, strategic bond and fund of fund offerings. We may also see further demand for equity income funds.
There may start to be renewed interest in riskier areas such as growth stocks, emerging markets and smaller companies if stock markets continue their rise of the start of the year. However, if markets slump again or show further volatility, which is very likely, then many of those who were making tentative steps toward taking more risk, rather than seeing any market falls as a buying opportunity, are likely to turn around and head for the hills, well, for cash and fixed interest at least.
Patrick Connolly is head of communications at AWD Chase de Vere