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Dump trackers and invest in finding value

Alan Steel
Alan Steel

If you’ve time on your hands over the next week you could try looking into what “experts” were saying about oil prices some seven years ago.

Remember when it was hitting $140 a barrel, going much higher and about to bring the world into turmoil ?

As oil has plummeted in price to around $60 a barrel , the same experts say it could go even lower and bring the world into turmoil. So is it really that bad to have cheaper oil, energy costs and petrol?

Leading commodity analysts Ned Davis Research, John La Forge and Warren Pies, are worth listening to thanks to the accuracy of their predictions and the fact they don’t manage money. They are of the view that we are in the middle of a multi-year secular bear market in all commodities.

How will this impact stock market returns? What can we learn from history given this has happened before?

In the eighties and nineties  in similar circumstances it coincided with a secular bull in share prices, whereas in the seventies, and after the start of the Millennium , high oil prices coincided with disappointing equity returns.

Given the evidence I’d go along with the NDR view that the next few years will reward risk takers. So all you need to do is buy “cheap” UK Index Trackers and Bob’s your uncle?

Now hold on there. Did you know that 10 years ago £16 billion lay in these funds, and now it’s more than £81 billion, an amount that’s doubled over only three years?

And it didn’t happen thanks to performance. Over the last 12 months the “popular” Virgin UK Tracker , including reinvested income is DOWN 1.24% whereas the much maligned Invesco Perpetual High Income fund which has had to cope with billions withdrawn since Neil Woodford left is UP 11.29% over the same period.

So, here’s a couple of thoughts for 2015. Cheap oil is good, not bad, and to enjoy the investment benefits accruing, why not dump your trackers for those managers who see the sense of finding value wherever it lies and have the patience to wait until the herd arrives forced to pay higher prices.

Alternatively, given Google are buying up all the world class new technology companies, maybe buy Google and wait.

Alan Steel is chairman of Alan Steel Asset Management

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