Who should take a macro-economic view

An IFA advising clients will, as part of their due diligence, need to have some macro-economic view as a point of reference to be able to better understand the value of the investment offering, he says.

Mr Clapton says it is also likely that many clients will have their own views and will wish to debate those matters as part of the process of trusting the adviser.

Emiel van den Heiligenberg, head of asset allocation at Legal and General Investment Management, says to add value from macro-economic views through skill rather than luck there are two main alternatives, which rely on either having an edge in idea generation or else a different objective from most competitors.

Once a set of broad macro-economic views are held by lots of investors, Mr van den Heiligenberg says they will generally be priced into markets.

Generating ideas earlier or with higher conviction than other investors is complex and resource intensive, he points out.

Mr van den Heiligenberg says it relies at least in some part on independent research and so is best carried out centrally at an investment house level.

Without that scale of resource, Mr van den Heiligenberg says it is hard to see how an investor could realistically gain an edge on a consistent basis.

Even if a macro-economic view is already priced into markets, Mr van den Heiligenberg says relative asset prices will reflect the attractiveness of different investments for the average market participant, given their objective, risk tolerance and investment time horizon.

To the degree that a particular investor’s circumstances differ from that typical investor, Mr van den Heiligenberg says they could still benefit from established macro-economic views, as the value they place on different assets can vary from other investors.

For example, he says an investor with a 10-year investment time horizon is likely to take a very different view to those investors focused on the next six to 12 months.

Mr van den Heiligenberg says this is where a fund manager, IFA or even individual client can add additional value because they will have a specific investment objective.

He says the fund manager is best placed to add value within funds, while the IFA’s edge is in tailoring a solution for specific client needs.

Other than professional investors, such as insurers, Mr van den Heiligenberg says only a very small proportion of end clients are likely to have the experience and time to add value from macro-economic views on a consistent basis.

Arguably Peter Rutter, global equities manager at Waverton Investment Management, says the investment house and fund manager are best placed to generate a macro-economic view given their experience, expertise and access to information.

The key is to contextualise this to the clients’ needs with the support of IFAs, Mr Rutter says.

For example, Mr Rutter says a client with an economically sensitive job or business interest is probably less appropriately served by a manager with a pro-cyclical macro-view and investment exposure.

Louis Coke, senior investment manager at Charles Stanley, says in his opinion it should be the fund manager who takes the macro-economic view.

Mr Coke says the reason for this is that the fund manager must be allowed to express his views on the markets in his own style, and a macro economic view is crucially important to this if you are managing funds with a ‘top down’ view.

If the financial adviser is employing the services of an outside fund manager, whether via models, discretionary fund manager or any one of the plethora of options available, then Mr Coke says the adviser’s role is to assist the financial planning needs of the client, and to leave the investment management to professionals dedicated to this area.

While fund houses having a ‘house view’ is helpful and the firm can of course arrive at the view after much research input into the subject, Mr Coke says forcing this view on to fund managers can lead to a disconnect between what fund managers believe and what their portfolios reflect.

Mr Coke says: “Fund managers are (in the main) creative individuals and they work better if they believe in their work.”

But David Pages, senior economist at Axa IM, says it is everybody – the investment house, fund manager and IFA – who needs to take a macro view to investment.

He says a macro view is one of the ‘core’ components of any investment position.

Mr Pages says: “End investors should be sure that they are aware of the macro view implicit in any investment (or indeed if the investment is macro-neutral) and are comfortable with what it suggests.”