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The Sound and the Fury

Andrew Waterworth

As a phrase, ‘cutting out the noise’ has an obvious appeal. Who wouldn’t want all their decisions to be made without any outside distractions? Being able to apply pure logic without reference to the messy business of what is actually going on in the world.

As a communications professional, I am often cast into the role of being another voice adding to the clamour. The charge ‘physician heal thyself’ could fairly be thrown at me. I hold my hands up. I am part of the problem! I have spent my professional career working for asset management and financial services companies where a large part of the job description is responding to outside events.

But can the communications sector also be a part of the solution? Well, to a certain extent it has to be. Those ‘pure vacuum’ decisions really don’t exist in real-life. The deceptively simple advice to lose all the extraneous stuff that clutters up our days is all but impossible in any given real-life situation. It is particularly so when we consider the all-encompassing media-saturated world we live in today.

This has been highlighted by the crazy few weeks that followed in the wake of the UK referendum decision on June 23 when the old adage that a week was a long time in politics appeared to have been replaced by a new one about changes happening by the hour. As much as it is easy to say that in the wake of the referendum result investors should beware making hasty decisions, we can’t truly believe that they won’t.

It really is no surprise that, as the figures released by the Investment Association showed in early August, retail investors had withdrawn £3.5bn from UK managed investment funds in June. As was pointed out in the press coverage, it is a total that dwarfs the worst months at the time of the financial crisis.

Leading the charge to the exit were investors in equity funds which accounted for the majority of the outflows. But we had already had premonitions of the fear abroad after it become known in the immediate aftermath that many of the larger commercial real estate funds were halting further redemptions after having been hit by a sudden rush.

Now, in this instance, an argument can be put that such ‘event-sensitive’ money should never have been deposited in mutual funds where the underlying investment - commercial property - is so illiquid. But spare a thought here for anyone who wakes up to the changed reality of commercial property in a country which would seemingly appear to be heading into a self-imposed recession. It’s wholly understandable that an investor should consider heading for the exit forthwith, leaving the fund manager to worry about what the redemptions might mean for the future of his or her fund.

Lest we forget, before we launch into rants against investors putting their money into inappropriate vehicles, we should bear in mind that many such investment decisions in recent years have been driven by that most sensible of motives, the search for yield. With interest rates driven effectively to zero and bond markets now all but un-investable, investors have been seeking returns wherever they can, whether that be through property, alternatives and all points in between.

In such circumstances, sensible arguments about the need for asset allocation and looking at the long-term picture can often become drowned out. Yet, as much as information overload is a very real risk during bouts of extreme political or economic stress, I do feel that it is at times like these that the message about long-term investment planning over short-term market timing needs to be reaffirmed once again.

My years of experience in and around the investment world tells me that the decisions for investors are unlikely to get any easier. At the time of writing, we are expecting contradictory rate moves in the UK and the US, we have the US general election looming and the uncertainty driven by global events and terrorism seems unlikely to abate any time soon.

‘Too much information’ is a glib phrase but in circumstances such as we face today it is very apt. When it comes to navigating tricky investment waters, I see a role for those in the profession I represent to help guide investors by hammering home the message that consistency of investment objectives will often help in times of market stress.

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