Hope and Goodwill to All

There can't be too many people unaware of the Christmas Story. You know - it's the one with shepherds in the fields looking after their flocks, a family without hotel accommodation, the Stable, the Star in the sky and the Three Wise Men.

As we approach the beginning of a new decade I thought it was worthwhile revisiting the Christmas story from a fresh perspective. We know all the bad news being predicted for the next few years so I thought you could do with some hope and goodwill.

Pessimists still talk about terrible economic conditions, double dip recessions, little hope for economic growth and so on. Of course at the end of last year the talking heads never predicted the stockmarket increases we've now seen, especially from developing country funds.

Let's start with sheep. I'm not sure who's looking after the flocks, or as we prefer to call them the herd. Unfortunately, as usual, the herd appears to be in the wrong place. Research shows that at the bottom of the stockmarkets in the early part of this year the majority of private investors dumped equities and rushed to deposits and gilts.

We hear from researchers in the US that investors there are buying gilts and fixed interest to such an extent that 23 times more money is going there than into equities. And yet equities are still cheap on a historical basis.

And then there are the Three Wise Men from the East. The East in this case includes China, India, Russia, Emerging Europe and the Asian Tiger Economies.

What have the Three Wise Men brought us? They've brought golden returns, miracle opportunities and, quite frankly, commonsense. Who are they?

First of all there's Angus Tulloch at First State. He's been running the Asia Pacific Fund since the late 80s and more recently started the Asia Pacific Leaders Fund which is more defensive. He is a defensive manager so he doesn't tend to have the spectacular returns in good years that many others have, but protects investors better in the bad times.

His flagship fund is up 14.7% per annum in the last decade. £10,000 invested 10 years ago is worth almost £40,000 today. His five year performance to date is even better, 19% per annum, £10,000 invested 5 years ago worth over £24,000.

Next up there's Graham French of M&G. His fund is M&G Global Basics, investing in global large cap shares seeking to benefit from the India, China and Developing Country demand. Over the last 12 months the fund is up over 32%, and up 96% over five years.

Finally, there's Robin Geffen from Neptune. He runs the Neptune Russia & Greater Russia Fund. It celebrates its 5th anniversary on 5 January, and currently the fund is up 200% from inception. That's turned a £10,000 initial investment into £30,000.

So what's this about the Star in the sky this time? Well the twist in the tale is the Three Wise Men this time round aren't following the Star - it's following them. And the Star I'm talking about is Anthony Bolton.

He's coming out of retirement and moving to Hong Kong to open up a fund investing in China. He believes the opportunities today in China are equivalent to those in the UK and the US in the 1970s.

He launched the Fidelity Special Situations Unit Trust in 1979, and managed it until last year when he retired. Those who invested in the fund from day one - and one of our clients did - have enjoyed a return of over 19% per annum compound. That means they've doubled their investment every three and a half to four years.

So the old Star of UK investment is following the Three Wise Men in the East because he believes China is at the beginning of a long term bull market, and so do we. This view is shared by Ned Davis Research in the US who last year were awarded the Accolade of the Best Investment Analysts in the World.

They're Stars from the West. Do they agree with the Three Wise Men and Anthony Bolton? Yes they do. A recent 72 page research document from them studied the major economies in the World. It concluded that 17 are in bull markets and this trend will last for many years to come. Most of these are in the East.

So the future is bright as long as you follow the Three Wise Men and the Stars.

All the best for next year.


Alan Steel


This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.