Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
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According to a press article last weekend, investors in "with profits" policies should shun those companies with low equity content in their funds, the argument being that only by having a higher exposure to equities can "with profits" funds make money.
We believe the cyclical bear market in equities will soon resume. In about another four years, we expect share prices to be at least a third below today's values. Insurance companies who have sold all equities will at least hold onto policyholders' money but companies with high equity content in "with profits" funds will continue to reduce returns to investors as losses mount.
No clever manipulation of figures can hide losses when markets turn down again. Believing that more equity content is good will amount to little more than pushing water uphill. Far from choosing those "with profits" funds with a high equity content, investors stuck in "with profits" should be grateful if the fund has sold out of equities altogether.
Please now look at what we said on 15th January 2001.
Contrary to the excuses offered by the financial services industry, the entire endowment crisis was foreseeable years ago. This is what we said in Newsletter 23, published 1st November 1993:-
".. there is no guarantee that the final pay-out will leave a profit over all the extra costs ... Between 2004 and 2013, households will discover whether it is all worth while or not."
We even refined our foresight eight years ago (Newsletter 31, 25th April 1996):-
"In another 5 years, the endowment/pension/PEP mortgage scene will turn to net disinvestment ... This process will start before 2002 and last until at least 2014 .. It cannot be avoided and is a long term trap for the British household."
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© Kauders Portfolio Management 2004