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Inflation, investments and elections: Gazing into the crystal ball

Finance | Vibeka Mair | 18 Mar 2010

BBC broadcaster Adam Shaw buttonholed charity investment experts from CCLA, Newton and GAM on the future economic outlook in a spirited panel session at the Charity Investment Forum 2010.

The debate, between James Bevan, chief investment officer at CCLA; Jamie Korner, director of investment management at Newton and Jeremy Smouha, portfolio director at GAM, covered inflation, politics and even the fortunes of California.

Here is a selection of the best questions and answers…

Shaw: What  is the economic outlook in the short term?

Smouha, Gam: “Stronger companies will lose competition and their margins will rise. Invest in these. Norway and Australia are coming out of the recession quicker. Exploit these markets and make returns.”

Shaw: Are investments taking on an international aspect in light of the growth of Asia?

Bevan, CCLA: “Don’t think of stock markets in regions but by company.”

Korner, Newton: “You can buy companies better here or in the US. Buy developed market companies with exposure. You know them and can invest directly compared with those in China.”

Shaw: How can we get the deficit down?

Smouha, Gam: “I think it’s important for the government to give people incentives to work. If you increase taxes you will find that people will work less hard.”

Shaw: Will we see the death of the Euro?

Bevan, CCLA: “Greece’s deficit problem is rather less than California and no-one is talking about the disintegration of the US dollar.”

Shaw: Has the way charities invest changed?

Bevan, CCLA: “There is a sea change. There has been a repudiation of the Yale model. There is a re-focus on genuine economic growth.”

Smouha, Gam: “Last few years the calibre of trustees that sit on the investment committee have changed. They are worthy practitioners.”

Shaw: Are hedge funds a risk?

Smouha, Gam: “We used hedge funds since they started. They have stable returns and bring lots of benefits. When a hedge fund strategy produces returns that are higher than bonds and not collated with equity, it is a third driver of returns.”

Korner, Newton: “Some hedge funds are not significant distributors of income; rather like unit trusts, some are good and some are bad. 2008 proved that to just be invested in hedge funds [in order to reduce risk] was an absolutely meaningless thing, as they exist for a single purpose which is to make money for their clients.”

Bevan, CCLA: “I look at what I can invest in that delivers returns and reasonably spreads risk. This is a much better year for the commercial property market and infrastructure market.”

Shaw: What will be the cost of inflation and is it a good or bad thing?

Smouha, Gam: “Investment fees will be down and that’s very hard. But inflation and low interest rates means people can set up new businesses.”

Korner, Newton: “It is in the interests of every government to engineer some inflation, but 4 per cent inflation is not anything to encourage, 2 per cent is bad enough.”

Bevan, CCLA: “In terms of whether the government really wants high inflation, this government still has a lot of debt still to issue. So I think the government will not want inflation right now but may be powerless to stop it given the weakness of the pound.”

Shaw: what will a possible political change bring?

Smouha, Gam: “The Conservatives will be good for investment. Labour will find it harder to get growth going as it wants to keep taxes high.”

Newton, Korner: “The Conservatives will be good for investment if Mr Clarke replaces Mr Osborne.”

Bevan, CCLA: “A hung parliament is the worst of all outcomes. Nothing would get done.”

See www.civilsociety.co.uk/finance for more comprehensive coverage of the Charity Investment Forum

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Directory: Newton Investment Management Ltd | GAM London Limited