Performance of the FTSE over 1-mth
Source: Financial Express Analytics
Later re-entrants to the market will now be looking at higher valuations, but it is important to remind ourselves that the growth is coming from a low base, with the market having plummeted more than 30 per cent in the wake of the 2008 Lehman Brothers’ collapse. But with cash still offering such poor rewards, it could be argued investors should at least be considering a partial switch back to equities.
There are caveats. Banks remain less than optimally capitalised, and lending to business remains rationed while balance sheets are being rebuilt. Job losses have occurred, while at the same time tax rises beckon. If the ending of "quantitative easing" (QE) is too abrupt, markets would be dealt a blow. A general election in the offing does little to dispel uncertainty, also.
However, there are positive factors at work. Interest rates remain low, which helps affordability for borrowers. At the same time, those companies that have weathered the past two years have emerged in reasonable shape, which ought to translate into improved profits. Overall, there are signs the recession has been mild against previous expectations and is abating.
For investors who share this view, an examination of Financial Express data can point to those funds which have been successful in negotiating the volatility of the stockmarket over the past three years.
Performance of funds over 3-yrs
Source: Financial Express Analytics
Filtering out the funds that failed to generate at least a 15 per cent return leaves four candidates, and notable among these is L&G's UK Alpha.
This is a fund that generated a total return of 32 per cent over three years when many of its peers were shedding their clients' savings. L&G then went on to profit from the resurgence of 2009, storming to an 89 per cent return in the 12 months to 8 January 2010.
Volatility is endemic in stockmarket investments, and this fund's managers actively seek out more interesting stocks that are likely to carry heightened levels of risk. Despite that, its 22.7 per cent risk measure is not excessive against a sector median of 19.7 per cent, especially when L&G's returns dwarf those of the sector average.
The risk factor can be mitigated to an extent, and the Majedie UK Equity Fund manages this - the volatility stands at 17.5 per cent - but at a cost in terms of performance: its 34 per cent one-year return would not disappoint an investor who is getting a tenth of that from a high street deposit, but it does pale beside L&G's gain.
Ultimately, investors who do not have the time to ride through stockmarket volatility would feel uncomfortable in this environment. But for those with a strong nerve, there are long-term gains to consider.