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Will there be spring cheer for savers? | Trustnet Skip to the content

Will there be spring cheer for savers?

21 April 2009

With the end of tax year behind us, we will soon know how the ISA season has shaped up as the sales figures start to come in.

By Annabel Brodie-Smith,

Communications Director, AIC

This year’s Budget could be one of the most important for a long time – it certainly comes during one of the most challenging economic periods we have seen.

Whilst we are all still looking out for the much anticipated 'green shoots' of recovery, the G20 meeting of world leaders has clearly been good news for stock markets, to date at least. It’s been a difficult year for the investment company sector, but it is encouraging to see that the sector out-performed in March, according to WINS Investment Trust Research.

The FTSE All Share closed the month up 3.3 per cent on a total return basis after being down 7.7 per cent at one stage. The investment company sector was up 5.6 per cent in March, out-performing the wider market by 2.4 per cent. Simon Elliott from WINS adds that, "so far in 2009, the investment trust sector has out-performed with a fall of 2.5 per cent in the first quarter compared with a decline of 9.9 per cent for the index."

Of course a fall is still a fall. But given that the investment company sector usually outperforms in a rising market and underperforms in a falling market, due to the use of gearing, could this reversal of fortune be an encouraging sign? Whilst it’s too early to tell, it is interesting to see that active investors are beginning to think about returning to the stock market.

Our own AIC research of 1,311 active investors during February 2009 found many investors preparing to enter the stock market over the next few months, tempted by cheaper stocks and the need to find alternatives to low-interest rate savings accounts. Half of active investors said they planned to increase their stock market exposure, up significantly from 38% the previous year. Sadly for ISAs, fewer active investors planned to use their ISA allowance (66 per cent in contrast to 74 per cent last year). And despite the recession, active investors worried most about getting no interest on their savings accounts, rather than the poor state of the global economy.

Of course despite the recent stock market gains, much uncertainty remains. Indeed the private equity investment company sector has felt the brunt of the credit crunch all too acutely; particularly amongst those with a focus on the large leveraged buyouts, and discounts are at their widest in memory. The use of high levels of debt in addition to equity (known as ‘financial gearing’) and high levels of over commitments have become issues for some of the sector. However, many analysts are taking the view that for those Private Equity investment companies in a position to ride out the storm, there may be opportunities.

Commenting on the current issues in the Private Equity investment company sector, Simon Elliott, Head of Research, WINS Investment Trusts, said: "In general, it is easy to be negative about the private equity sector and undoubtedly, the industry faces huge headwinds in the short-term. However, we retain our belief that a number of funds are well positioned to benefit from good investment conditions over the next few years."

Tim Syder, Deputy Managing Partner of Electra Partners, (managers of Electra Private Equity plc) and Ian Armitage, Chairman of HgCapital think private equity will play a role in the economic recovery. They feel private equity will be able to step in where the banks are unable to provide finance, and potentially buy illiquid assets from the banks. In fact, Tim Syder goes as far as to predict that we are entering the best environment for new deals for 20 years or more.

Only time will tell if he is right. But in the meantime, and on an Easter theme, the old adage that you should not put all your eggs in one basket is particularly apt. Hopefully some spring rays of sunshine will fall on markets and the wider economy.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC). The views expressed here are her own.

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