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A fund manager writes … a translation

What a letter from your asset management company might say, and what it actually means

Dear investor, At ABC Asset Management we are pleased to report that we have once again outperformed our benchmark, with the fund earning top quartile returns. (Translation: Over the past three months we have lost 15% of your money, but our rivals did even worse than us. Hopefully you won’t notice the performance fee we’re going to pinch from your fund.)

We are currently experiencing exceptional market volatility (the stock market has fallen) and sentiment remains negative (we think it’s going to get worse). Given the headwinds facing global markets, it is likely that investor returns will undershoot expectations (your fund will carry on falling in value).

The market’s re-rating and stock downgrades do, however, present opportunities in portfolio construction. (Shares have fallen in price, and now we’re wondering which ones we should buy or sell.)

We have reduced our overweight position in financials. (We had bought lots of shares in banks thinking they were going to recover, but got it wrong.) We maintain a low conviction on domestic stocks but are long-term believers in fundamental value. (We are no better than you at guessing what’s going on in the UK market, but we have our fingers-crossed that things will get better.)

We believe investors will optimise returns through a properly diversified investment strategy. (We are just going to buy shares that mirror the movements of the FTSE 100, so we won’t do better or worse than anyone else and you can’t blame us if things go wrong.)

We believe that maintaining high levels of liquidity is essential. (We sold some of our really rubbish shares and have left the money in cash while we decide what to do.) We remain long-term believers in equity. (What else are we supposed to say? The stock market has been lousy for a decade now but we have to keep saying that it will pick up.)

Price/earnings ratios (P/Es) are currently attractive, both historically and on an absolute basis. (Actually no one knows for sure how much the “E” – the profits of a company – will be this year, so we don’t know if it’s attractive or not.) Ebitda and price-to-book valuation measures are also attractive. (No, we don’t really know what that means either, but it sounds good.)

In the coming months, we anticipate markets will continue to be dominated by top-down macro factors (no one has a clue what’s going on) but our focus on stock-picking will reward investors. (We will carry on putting bets on shares in the hope that some of our horses will come in.)

Finally, we would like to remind investors that a multi-strategy approach in a diversified portfolio will over the longer term generate superior returns. (See all of the above.) © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds