Public Trust recommends investors review strategy

Monday 26th July 2004

Investors in managed funds are being advised by Public Trust to review their forward strategy in light of rising interest rates and rapid growth in the world's economies.

Public Trust Investment Funds Manager Colin Thomson said that instead of having to deal with shrinking growth and the danger of falling prices, investors will need to consider the implications of rapid growth and the risk of a sharp rise in inflation.

"If central banks have to raise interest rates significantly to contain inflation, it could affect investors' returns, as higher interest rates can cause share and bond values to fall," Thomson said.

Thomson recommends that in light of these changing circumstances investors review their investment strategy.

"Investors who took our advice and held on to their multi-sector fund investments despite previous gloomy news have been rewarded over the last few quarters with near record returns.

"But with world economies recovering and inflation rising it is likely that interest rates will also rise. And when rates rise, bond capital values and share prices tend to retreat.

"For investors, this means that returns from multi-sector funds are not likely to be as high as they have been over the past year. The markets may also be more volatile - moving up or down in response to changes in interest rates as the central banks try to control inflation," Thomson said.

Public Trust believes that investors who rely on their investments for regular income may need to be more cautious in their approach over the coming quarters and investors who wish to achieve the same level of growth in their investments may have to increase their risk in order to do so.

Thomson also recommended that investors review their forward strategy to make sure that their investment portfolio still suits their circumstances and to make sure that the future expected returns and risks are still acceptable.

"We believe that the changing environment presents a strong reason for investors to reassess their risk profile and make the appropriate adjustments to their managed fund portfolios," Thomson said.

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