No Time to be Going Negative on Equities
The reaction of many institutional and retail investors to the dire performance of equities over the past decade, and the equally unwelcome volatility induced by stock markets’ sickening rollercoaster ride, has been a negative one.
Greenwich Associates spoke last week of “strong indications” that many German institutions will not attempt to rebuild significant equity positions but will instead rely more on fixed income.
A week earlier, a survey of European and North American pension funds by bfinance, a consultancy, identified strikingly negative sentiment towards equities on a three-year view, with a net 21% of schemes planning to cut their exposure, even as they eye larger holdings of a swathe of traditional and alternative assets.
And UK pension funds have already set off in this direction, with the average fund having an equity exposure of 44.2% last summer, compared with 54.9% in 2007, according to the National Association of Pension Funds.
While wariness of the recent woeful risk/return dynamics of stock markets is understandable, are investors missing a trick, cutting their allocations just at the point they should be doing the opposite?
Research by Fidelity International suggests stock markets exhibit mean reversion on a decade-by-decade basis. In other words, fallow decades tend to be followed by bountiful ones that are powerful enough to bring the long-term return from equities back to the historic norm.No Time to be Going Negative on Equities
Big Issues to Resolve to Wrap up Directive
The Spanish Presidency of the European Union has hit the ground running on Europe’s new package of regulations for hedge and private equity funds.
Both the Council of Ministers and the European Parliament have brought out reports suggesting amendments to the original draft for the alternative investment fund management directive; a document published by the Spanish presidency last week summarizes the key differences still to resolve.
Calls for Norway to Go More Passive
The Norwegian Government Pension Fund suffered its worst year in 2008, losing NKr633bn or close to a quarter of its value. Critics likened it to gambling.
About NKr80bn of the losses were directly related to active management, which has prompted calls for a more passive investment strategy. In April, Norway’s finance ministry started a broad review on whether to continue active management of the NKr2500bn fund, the world’s second largest sovereign wealth fund.
A new academic report, commissioned by the government in connection with the review, says the fund has been taking “appropriate” risks. But it recommended one notable change: incorporating systematic risk factors, such as volatility and liquidity, into the fund’s benchmark.
SocGen Fall Gives Banks the Jitters
The banking sector suffered an unexpected blow after Societe Generale warned of a £1.2 billion write-down on toxic debt. France’s second-largest bank blamed contrasted signals from the US residential property market for leaving the bank only just in the black.
It now expects to report only a slight profit for the fourth quarter when it posts earnings next month. The warning spooked investors and Societe shares fell by as much as 6% in early trading, although the price picked up slightly later in the day.
The French bank also warned income from corporate and investment banking would fall in the fourth quarter compared with the third. It blamed lower investor activity in November and less favorable market conditions.
Despite this, the bank said it was in a favorable position to go into 2010 with confidence, citing a robust financial structure and new management.
Superjumbos Push Airbus Production to Record Highs
Insider figures revealed that Airbus delivered three A380 superjumbos in December, bringing its total production levels last year to a record 498 planes.
That provided a boost to the UK’s manufacturing industry, since the wings for Airbus aircraft are designed and made in the UK at Filton in Bristol and Broughton, North Wales. Despite the collapse in demand for flights and cargo transport during the recession, Airbus’s parent company EADS picked up new orders to make 311 aircraft in 2009.
Airbus delivered 10 A380s last year, down from 12 the year before. It has already announced a review of the aircraft’s manufacturing process after continued delays, mainly due to the extensive customization allowed on each $328 million plane.
Aircraft production levels have increased on the back of an order boom that peaked in 2007, although some analysts have warned demand could be squeezed in 2010.
Wolseley Pulls Plug on Irish Arm
Plumbing and central heating supplier Wolseley agreed to sell its Irish unit for €26.5 million to concentrate on its core business in Britain. The firm, which trades as Plumb Center and Build Center in the UK, offloaded loss-making Wolseley Ireland Holding Limited to private buyer WIBHM. The unit operates as Heat Merchants, Brookes and Tubs & Tiles in Ireland, and has 67 branches and about 650 staff. It had losses of €34 million last year. The disposal was expected after Wolseley said in September that it would restructure and focus on Britain, the US and Scandinavia.
House of Fraser Christmas Cracker
Department store chain House of Fraser had its best ever Christmas and a Boxing Day sales jump of 27%.
Chief executive John King said the performance reflected efforts to improve the business through store refurbishment and the popularity of own-brand products.
Sales were up by 7.1% in the eight weeks to 2 January. Online sales rose by 91% in the period, with cosmetics, knitwear and boots the most in-demand items.
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