MARKET COMMENT
When Fund Managers Speak The Truth

By Maynard Paton (TMFMayn)
May 16, 2003

Fund managers have a bad reputation. And deservedly so. Time and time again, studies show most professionally managed funds failing to beat the humble index tracker.

Further evidence (if any were needed) of their inability to outperform comes from a press release published yesterday. Here's what one fund manager has to say about the recent stock market rally -- and what he really means!

Fund manager: "I'm convinced that the recent return to health witnessed in the UK [stock market] is something more than a 'dead cat bounce'."

"The FTSE 100 may have put on something like 21% since the index trough in March, but I'm positioning my funds to take advantage of the additional potential I see from the UK from here."

"This view... represents a significant change of direction from the more neutral, pragmatic stance we were forced to adopt in the run up to the war in the Gulf."

"As a team, it would be easy enough for us to stick our heads in the sand and say that we're going to 'buy the dips', but I just don't think we'll see many more dips this year."

Fool translation: "Following the market's 21% rally, I now regret sticking my own head in the sand and remaining in cash prior to the Iraq war. My fund has obviously underperformed of late, so I'm scrambling back into shares and encouraging everybody else to do the same, while praying this isn't a sucker's rally. None of this is my fault though; I was 'forced' to adopt my pre-Iraq war stance."

Fund manager: "With a speedy 'resolution' of events in the Gulf... investor confidence has been re-invigorated with the level of risk appetite rising daily... In terms of the fundamentals, not a great deal has changed."

Fool translation: "Had I remembered the quick conclusion to the 1991 Gulf conflict, then perhaps I wouldn't have been surprised by the 'speedy resolution' this time around. Now that shares have risen sharply, I've got to take a few risky punts to make up for lost ground. Looking back, I can't see what I was worrying about before the Iraq war, since the fundamentals haven't changed a great deal."

Fund manager: "Prior to the outbreak of war, the equity risk premium rose as high as 6.5%, underlining the excessive pessimism of the day."

"Another key factor that we see driving UK investors back towards the equity market is the current level of dividend yield on offer from 'UK plc'. At 3.6%, the FTSE's current yield must look very tempting to the country's huge army of deposit investors..."

Fool translation: "Blimey, the market did look cheap in March. I really should have bought, especially as the FTSE yielded over 4% at the low point. So if I'm a buyer now at 3.6%, you're probably wondering why I wasn't piling in at 4%. I was simply too depressed by the excessive pessimism of the day."

Fund manager: "Let's not forget that 2004 is a US Presidential election year and that we can confidently expect the current administration to move heaven and earth to prevent it taking place against a deteriorating economic back drop."

Fool translation: "I'm sure most investors don't realise 2004 is a US Presidential election year. Had someone told me about this before the Iraq war, I might not be in my current predicament." 

Fund manager: "Personally, I think a short-term target of 4,200 on the FTSE is quite achievable and I wouldn't be surprised if the index finished the year above this level."

Fool translation: "Though I couldn't predict what the market was going to do earlier this year, I've suddenly developed the knack. I'm currently busy buying shares, so you must realise I really do need the market to go up from here."

More: FTSE 3,287: Time To Buy