YOUR PORTFOLIO Hard times grounds . There are really good companies having a really bad time .”
Out of your comfort zone James Lowen , co-manager on the
JOHCM UK Equity Income fund , says it is also important to look beyond the “ comfortable ” options . For example , dollar earners are the obvious choice today , given the weakness in sterling , but he notes many of these are as expensive as they ’ ve ever been . A good fund manager should be thinking harder at a time of crisis . Lowen says difficult periods are an opportunity to refine risk processes . Experience has taught him to concentrate on balance sheets , for example . Robust debate is also important : he and Clive Beagles have managed the fund for 18 years , and while neither has a sector specialism , they take it in turns to meet companies : “ This creates more debate and discussion ,” says Lowen . “ It means the hurdle to get into the fund – and stay in it – is high .” What are the key risks today ? Widdowson says it is vital not to overpay . Paying close attention to valuations provides a margin of safety , which separates him from
Back to the 1970s ?
How similar is today ’ s environment to the 1970s ? On the face of it , there are worrying parallels , including high and rising inflation , energy crises and political instability . According to the Office for National Statistics , RPI inflation in the UK averaged 12.7 % in that decade on a calendar-year basis , peaking at more than 24 % in 1975 . Interest rates hit 15 %.
However , there are a number of key differences to today . We haven ’ t seen the same number of accumulated economic shocks that occurred in the late 1960s and 1970s . Equally , workers ’ bargaining power was far higher , which pushed up wages and embedded inflationary pressures . Today , only 20 % of workers are members of a trade union .
Perhaps most importantly , the level of interest rates was decided by the government of the day in the 1970s , which allowed for erratic and flawed decision-making . Today , the Bank of England has operational independence in setting monetary policy , and a clear inflation target .
/ 26 / trustnet . com