Investment Goals & Objectives residing in a cold and wet UK or a warm Spanish climate
Posted: Tuesday, June 22, 2010
by Peter Hardy
Lawsons Equity
Equity Investments and Funds designed for Growth, are these your Goals?
It must be said that when we decide to relocate to another country such as Spain, we often focus on what we believe to be priorities such as health care, dental care and general insurance and not on our existing investments, existing retirement pension pots. The following article may either highlight the benefits in riding the recent tough financial markets or otherwise. One point I would raise is that in the same way you may have reviewed your other needs as stated above i.e. health and dental care then perhaps its time you also had an in depth review of your existing portfolios and pension funds.
Over the previous 24 months, investors, be them domiciled in the UK, Spain, Malta or other geographical areas have been drawn by a number of growth stories and as a result have placed money into the emerging equity markets, but others believe that these markets are now overstated and that there are potentially better investment opportunities in territories such as Europe and the U.K. While investors feelings towards these areas is of a low nature, it is argued that their equity markets are offering financial investors greater income for their capital.
Investing in Equities
Investors can become so fixated on the idea of buying growth funds that they (unknowingly) bid prices up to levels where any growth is more than priced in. Therefore, with the belief that the UK Gross Domestic Production growth (GDP, i.e. output) is predicted to be comparatively low across the likes of Europe over the next couple of years, equity funds listed in these markets are seemingly unattractive. It is this view that may prevent you, the investor, from missing out on what commentators call real embedded value, found in relatively cheap fund prices.
Central to the theory is the fact that it is proven that equity fund markets rarely share any correlation to GDP growth, because equity markets discount growth well in advance (i.e. fund managers rely so heavily on economic predictions and forecasts, that an element of future growth is priced into their funds at an early stage). The Credit Suisse 2010 Yearbook, which uses 109 years worth of data from 19 countries to analyse trends in returns and risk, shows that the correlation between GDP growth and equity fund returns is actually negative.
Achieving your Financial Goals
Despite this lack of correlation, according to the March edition of the Merrill Lynch Global Fund Manager Survey, fund managers were 21% underweight in Europe, favouring emerging markets and America, where GDP recovery has been stronger. Fund Managers with a contrary view to this would instead hold overweight positions in the likes of the UK and continental Europe - markets which, in their opinion offer embedded value (and therefore a greater chance for future growth) and are much less susceptible to asset/pricing bubbles caused by over-subscription from speculative investors. This theory can be particularly beneficial if you have retired to countries such as Spain, Balearic Islands and Malta etc. and are delaying a retirement income from your current investment portfolios and have time on your side.
Of course, all of the above can be neatly wrapped up under one heading; sentiment which can be an emotional word for expats now living in the sunny regions of Spain looking to achieve comfortable returns from their UK pension fund providers. Sentiment is fuelled by many sources, including economic indicators, advertisers, fund managers and the media. Seen as one of the key drivers of global market movements, the power of sentiment is such that it has a massive influence over investment returns. Ultimately, it is the power of sentiment that determines which way the herd (and therefore the majority of investment capital) heads.
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Top-level comments on this article: (1 total)Hi Peter. Welcome to Searchwarp. Thank you for this informative well-written piece. ~~ Nenita
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