Leonora Walters of the Investors Chronicle called on Stuart Fowler to contribute ISA investment recommendations for her recent article Cultivate growth in your ISA.

No Monkey Business is scathing about the ‘let’s go shopping’ culture that is characteristic of the annual ISA season, and probably all too common amongst self-directed individual investors who want just this sort of guidance from the Investors Chronicle. To counter the tendency to pick the current ‘hot’ investment areas, Stuart picked two regions he believes are poorly represented in most private client portfolios: Japan and Europe (ex UK).

In the risky asset component of our own portfolios (so excluding risk free or hedging assets), which is always well-diversified by geographical spread and does not normally bias to the UK as ‘home’ market, Japan and Europe ex UK together currently account for about 38%. Contrary to perceptions that both have been well worth avoiding, they were key to our producing better performance in the bear market for the risky component of our portfolios than conventional diversifed benchmarks like APCIMS Growth.

As the Investors Chronicle article comes across, Stuart might seem ambivalent about using active or passive funds for either region. In fact his advice was explicit. Active managers of UK-based OEICs and unit trusts, including offshore funds in the analysis, have an appalling record of delivering consistent past (and therefore plausible future) ‘alpha’ or risk-adjusted outperformance in both Japan and Europe. Tracking has to make more sense.  

Leonora did pick up on Stuart’s comment that achieved investment returns are not well-explained by expected or even actual growth differences – also the theme of his recent post on China and emerging markets. Reading the recommendations of the other managers quoted in her article, there is a clear bias to growth stories. The No Monkey Business take is beware of the story: even if it is true, by the time you are hearing it it is probably already in the price.

TAGS: Active management, diversification, ISAs, performance, press mentions