"Investment is not an exact science".   This is one truthful dictum so-called expert fund managers roll out when they haven’t a clue which way markets will go.

Maybe if it wasn’t true I, for one, wouldn’t now be hunched over my keyboard agonising how to justify stating in this edition of Tr@cker Magazine ‘Now is the time to buy’!

And anyway, what would you buy?   Did I hear someone say Premium Bonds?

Yes, the humble Premium Bond is back in fashion.   Not surprising since the Government guarantees the return of all your capital, plus the chance of a decent tax-free prize.   In fact over the last 5 years they’ve given an average yield in excess of 3.5% pa - 5% for a higher tax rate payer!

How much have your investments returned over the last 3 years?

But be careful!   Before you rush to buy Premium Bonds, spare a thought for ‘old fashioned equity investment’.

Spare a thought now?   Now, when the economic and political gloom has never seemed more gloomy?   Now, when the latest Bank of England’s cut in interest rates to a 47 year low drove markets lower? Now, when war in Iraq has never seemed more certain?

Yes now, because investment isn’t an exact science, and it’s likely that you will be facing the wrong way when the markets turn.

Take a look at history.   I’m old enough to remember working as a unit trust manager in 1973/74 when everything seemed doomed.   At that time inflation was rampant, interest rates had never been higher, NatWest, our biggest bank, was technically bust and the price of oil was spiralling out of control.   It was thought then that one more disaster would sink the ship and herald the end of capitalism and the mixed economy.

That one more disaster did indeed happen.   Burma Oil, one of Britain’s bigger British oil production and distribution companies, went into receivership.   That was it.

The market rocketed up massively - around 30% in a couple of days - and within 3 months it had doubled.   There was absolutely no improvement, or even the sign of improvement, in our awful economic mess.   The market recovered simply because of investor psychology - investors had had enough.

Doubling your money in 3 months makes Premium Bond returns seem more like daylight robbery!

You will doubtless be asking:

"Why should we take any notice of any of this?"   Good question!

"Are you an expert"?   No – most definitely not.

"What are most experts saying?"   The market outlook is uncertain.

"Have experts been right in the past?"   Not often!

"What should I buy?"   Another good question!   But note that Tr@cker Magazine has, if nothing else, been advising consistently in 6 years of publication.   These are our major concerns:

• Tracker funds should form a core of an investment portfolio.
• The high fees of actively managed funds are unsustainable.
• If you pick a fund because it’s managed by a star fund manager you could run up extra high charges when he leaves his job.
• The performance of the average unit trust is inferior to tracker funds in both falling and rising markets.

Richard Carswell

Editor

1^st March 2003