Transcript

MARTIN UPTON
Looking at performance: The last few years, in fact really the last decade or so we’ve seen low investment returns. Interest rates are at rock bottom levels and performances of certain of the key stock markets have been not particularly impressive. So what sort of problems does that present to fund managers?
ANTHONY NUTT (Retired investment director and fund manager)
Well it does present problems because when returns are not very strong it’s really quite difficult to generate added value. That would be my argument. I mean there are some good reasons why economic growth is more modest that it has been in the past: population is declining, consumption waning, too high levels of debt - the sort of issues that we talk about in the economic pages of the press each and every day. So those excessive returns, those high returns rather than excessive, are much more difficult to achieve over and above the prevailing rate of economic growth within a given economy.
MARTIN UPTON
Does that then make fund managers take more risk than they should with their portfolios of investments?
ANTHONY NUTT
It’s unlikely but it may do. Fund managers, as professional practitioners, should, do, I would argue, understand risks. They look at the companies they invest in, if they’re an equity investor, or indeed a debt investor. They follow those companies really quite closely. In some cases fund managers will have followed the company a lot longer than the people running the company. And they build up research, they build up information, they build up knowledge about the businesses they invest in with the intention of recognising any risks which might undermine the return that they’re expecting or indeed enhance it.
MARTIN UPTON
OK. One last question on performance: There’s a lot of talk about technical analysis or chartism, as it’s alternatively know, as a means of enabling outperformance of the market. Charts enable you to predict, if you take the view of those who are fans of chartism, enable you to predict future market movements - future price movements. What are your views on chartism?
ANTHONY NUTT
Well, frankly it’s changed over the years and I would say sitting here today I am not a huge fan of chartism. The reason being, what does it identify? It identifies what has happened to investing patterns; who’s been buying, who’s been selling in terms of volumes, what’s been happening to the share price of a given investment. So for me it’s much more about historical patterns rather than predictive patterns. And to then look at the historical patterns and argue that can be predicted and send signals as to what may happen in the future, I think is a pretty tenuous argument to my mind. So I don’t really look at charts. I think they tell me a lot about historical behavior in the share price of a given company.
MARTIN UPTON
Do you think that it is a trend whose time is past, basically? I seem to remember back in the 1980s, 1990s there’s a lot of coverage of chartism in the specialist financial press, a lot of courses were offered on chartism.
ANTHONY NUTT
Indeed, I know people ...
MARTIN UPTON
But I don’t seem to see as much focus enthuses these days.
ANTHONY NUTT
No, I think that’s right because I think investing patterns and investing behavior during those times was more uniform, more understandable, and less sophisticated products were on offer. Now that’s not a particularly good point. The point I’m making there is the investment arena, the investment banks, the providers of investment products have offered more and more esoteric products to the retail investor and indeed the institutional investor and I think that’s complicated the expectation of returns.
MARTIN UPTON
Anthony, my most recent experience with chartism was not a good experience. I looked at the charts of a particular share and said, ‘This share has to be sold.’ So I did and low and behold within weeks it had soared upwards in price. So it was not a sell it was a hold or buy. So perhaps in the future I’ll be putting the charts to one side, hey!
ANTHONY NUTT
There you go Martin. Did it meet your criteria though?
MARTIN UPTON
Um, possibly not really on reflection.

[Laughs]

Thanks, Anthony.
ANTHONY NUTT
Thank you.