Mark Dampier: Short-term moves are impossible to forecast

The Analyst

Our investment objectives are always challenged in times of extreme market volatility. Despite investing with the intention of keeping holdings for the long-term, many investors I speak to become more short-term focused, often on the next three to six months. As a result they attempt to yo-yo between risky, volatile assets and those they perceive as safe havens. This is an unsustainable investment strategy. It might seem easy, but in practice investors get whipsawed around and end up on the wrong side of a market move just when it matters most.

We have volatility in spades at the moment, but while the market is dancing to every piece of macro-economic data that comes out, investors should concentrate on having a clear objective of what they want and look for investments that should help them to achieve it.

The crux of the matter is that short-term moves are impossible to forecast. The specific issue at the moment is that economies are poised on a knife-edge with low growth on one side and recession on the other. Central banks and politicians have little room for error, and actions such as lowering VAT tax or increasing spending, whilst simulative for the economy, simply add to the underlying problem of too much debt.

During these times I like to invest in funds whose managers have clear objectives and longer term thinking rather than being swayed by short-term fluctuations. I have highlighted Neil Woodford's Invesco Perpetual High Income Fund many times and I continue to do so today. In truth, no one really knows whether the western world will slip into another recession or whether we simply face a sustained period of low growth, but for many of Mr Woodford's holdings the exact trajectory of GDP is somewhat academic.

Last year, Mr Woodford was heavily criticised for not being invested in more economically sensitive stocks. Yet he has maintained his view that the western world has got to tackle its debt problems, and in doing so will inevitably experience a long period of lower growth. Mr Woodford is often portrayed as a bear, but although bearish on the economy he is upbeat on the prospects for the companies in his portfolio. He believes he owns a collection of shares that will see investors through these difficult times and will, in due course, increase in value. In particular he highlights pharmaceutical stocks as exhibiting tremendous value and he has a considerable overweight in this sector. So far the market hasn't shared his view, but then the market didn't agree with him on tobacco stocks in 2000 – and they are now up over 500 per cent against a market that is down.

The obvious factor in Mr Woodford's favour is that an equity income fund with a yield of around 4 per cent compares well against persistently low interest rates – especially if the income can grow over time as underlying companies increase their dividends. There must surely be a revaluation of these stocks at some stage, but many investors seem to prefer to pile into government debt (ie gilts). Yet with a 2.4 per cent gross yield on the 10-year gilt do you really expect an inflation-matching return?

Personally I would prefer to own a fund, or indeed individual companies, which look to be well-financed, are economically insensitive and have yields over 4 per cent net which could rise further. If we are (as I suspect) in a low growth environment then income will play a much more important part in shareholders' overall returns. Therefore Mr Woodford's funds, and others with a similar strategy, are excellent places to invest for the long-term. And for those who believe the markets have gone nowhere in the last 10 years (which as measured by the FTSE 100 is by and large right), factor in the reinvestment of dividends plus Mr Woodford's expertise and the result is quite different. Over the last 10 years the fund is up 128 per cent.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
FootballGerman sparks three goals in four minutes at favourite No 10 role
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam