Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: sciAticA errAticA who wrote (31972)	4/20/2003 6:27:54 PM
From: sciAticA errAticA	Read Replies (1) \| Respond to of 74559

Deutsche settles in for a long bear market By Simon Targett Apr 20 2003 20:00 The end of the war in Iraq may have lifted the spirits of world markets, but the long-term outlook for investors remains gloomy, says Karl Sternberg, Deutsche Asset Management's chief investment officer for Europe and Asia-Pacific. The prediction that the bear market is nearing its nadir may trip off the tongue of countless fund managers - but not Mr Sternberg's. He thinks the world is only at the beginning of a long bear market that could last for 10 - possibly 20 - years. To support his case, he points to evidence from previous post-war years and a theory of "investment regimes". According to this, there have been three regimes since the second world war: a bull market, which ran from 1949 to 1967; a bear market, which lasted from 1967 to 1981; and another bull market, which extended from 1982 to 2000. "From history, we can know the generic features of the new investment regime," says Mr Sternberg, speaking at DeAM's London headquarters near Liverpool Street station. "It will last for a decade at least, returns will generally be lower than in the past, and there will be false dawns." Given this bleak outlook, DeAM has decided not to wait around for the upturn - because that might not come during the professional lifetime of either some of its fund managers or investors. Instead, it has decided to search for what Mr Sternberg, twisting the title of Nancy Mitford's famous pre-war novel, calls "alpha in a cold climate". Alpha is fund manager's jargon for outperformance or, more plainly, making money. DeAM's solution is simple to describe - if not so simple to put into practice. "The answer is to diversify, diversify, diversify," says Mr Sternberg. For investors, that means reordering their portfolios; overthrowing "the tyranny of the benchmark" and ditching the strange habit of being happy when they are doing relatively better than other investors - even if, ultimately, they end up losing money; and going off in search of "absolute returns" (fund manager jargon for making money regardless of the times). "Relative investment is the child of the bull market," says Mr Sternberg. "Deciding whether we prefer Glaxo[SmithKline] or Astra[Zeneca] serves [the clients'] purposes well when markets are rising - but it doesn't when returns generally are negative." Just as investors are being encouraged to diversify, so too are DeAM's fund managers. Mr Sternberg says there is no "house view" on individual companies. This is partly for practical reasons. DeAM, part of Deutsche Bank, has $789bn (£505bn) of assets under management: "It's just too large to have one view". Also, however, DeAM actively encourages what Mr Sternberg calls "diversification of views" among its fund managers. It divides a client's portfolio among several individual managers, who each manage a portion as if they were the lead specialist. This "multi-manager" approach has a twin purpose: it ensures that fund managers, often opinionated people, have an outlet for their views and can be held responsible for their work. And it ensures that a DeAM client's portfolio gets the benefit of the the firm's all-round view of companies and the wider geopolitical climate. From DeAM's point of view, the strategy has a big advantage: it means that it can retain its global influence while, at the same time, developing some of the attractive features of a boutique. "We're trying to have our cake and eat it," Mr Sternberg admits. From the client's point of view, there are also advantages. DeAM's diversified structure - underscoring its belief that investors must diversify if they are to make money - should increase the chance of finding some real or absolute returns. And if Mr Sternberg is pessimistic about the big picture over the next 10 years or more, he is nevertheless confident that investors can make some good money. "You must remember that in bear markets you get some of the highest possible returns, while in bull markets you get some of the biggest negative returns. "When we say returns will be 5 or 6 per cent per annum, this will come from a 20 per cent, a minus 7 per cent, a 40 per cent and a minus 25 per cent, and so on. "There's no such thing as normal. Normal is just the long-run average of abnormals." The challenge will be to miss the big negative drops. If DeAM does that, then Mr Sternberg may find that clients are ready to show their love in a cold climate. news.ft.com