The stock market could be entering a period of relative calm, bringing opportunities for investors brave enough to back equities, says one of Edinburgh's leading wealth managers.
With the FTSE hitting a four-year high this week, Simon Lloyd, chief investment officer at Murray Asset Management (MAM) – which has been managing family money for 150 years – says shares have gone out of fashion, but could deliver strong returns relative to bonds over the next few years.
"Human nature always believes a disaster scenario will happen much more than it actually does," says Mr Lloyd. "The wild swings and sharp drops in the market have conditioned investors to fear the worst.
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"It is not that it can't happen again. But the fact that now everyone knows about all the problems, and is not deluded about the situation, makes it less likely it is going to happen again."
MAM is nearing the fifth anniversary of its spin-out from venerable Edinburgh law firm Murray Beith Murray, while Mr Lloyd's market view at the firm goes back to 1995.
He says: "From the early 1980s through to 1999, people were paying more and more for each pound of earnings [from shares] and pension funds were heavily exposed to equities.
"In the past 13 years we have had the opposite effect, where people are paying less and less for every pound of earnings. Pension funds exposure is almost entirely to bonds and big institutional mandates are not exposed to equities – so they have got cheaper and cheaper."
He adds: "My personal view is that we have got the immediate macro stuff with the US, Europe and China, but in the long run I would much prefer to be putting money into the market now than in 2000. Sometime over the next two or three years I think we are going to start to see a change of perception."
The advent this month of the new charging regime for financial advice will not unduly trouble MAM, which already relies on fees, not commissions, and has its team properly qualified.
It has a staff of 16, manages £275 million of client assets, and earlier this year signalled its growth ambitions by hiring its first business development director, the respected Amanda Forsyth, formerly with Adam & Co and Standard Life.
But Mr Lloyd says the growing demands of regulation are impacting on the Scottish asset management sector.
He adds: "There are success stories but there are pressures in there as well. There has been a lot of consolidation in our industry and a number of smaller operations absorbed. Luckily we are big enough, we have a full-time compliance officer, and combined with the economic malaise that is where the pressure is."
MAM, hobnobbing in Charlotte Square with the likes of RBS-owned Adam & Co, also likes to think it is small enough.
"We are not being directed from anywhere, not being told we have to buy this or support that. We take the decisions and implement them and we are the people clients talk to," says Mr Lloyd.
Unusually these days the firm has kept its back-office operation in-house – at a time when the Financial Services Authority is warning asset managers they remain fully accountable for outsourced operations.
But MAM has shied away from creating its own in-house funds. It now believes that under the new regime, firms may be under more pressure to demonstrate they have compared the whole market before steering clients into "own brand" funds.
Mr Lloyd says of the Edinburgh scene: "It is not doom and gloom but everybody is nose to the grindstone trying to get through – there is a lot of focus on regulation. A lot of the thrust of that is making sure people who do our jobs know their clients, and we wholeheartedly support that."
Much of the mud that has stuck to the industry in recent years has been down to the mis-selling of higher-risk products to lower-risk clients. But in an environment where cash is not king, and income is imperative, more risk is being taken.
Mr Lloyd says short-dated corporate bonds are one option, as are retail bonds – such as one from RBS which effectively has a Government guarantee. Then there are cautious managed funds and bond funds, now with a maximum equity exposure under new classification rules. "Personally I would not look at Government gilts – you can almost do as well in cash," Mr Lloyd says. He is also wary of structured funds and synthetic Exchange Traded Funds.
The new regime will make investor costs more transparent, and Mr Lloyd says: "If it brings a bit of clarity, and reduces costs, that's good."
But he adds: "It is quite easy to get too wrapped up in costs – they are an issue where you are buying something that remains relatively average ... a lot of the index-tracking funds are not as cheap as everybody thinks, and you can get a good actively managed fund for the same or less. Another thing about index-tracking is you get what has been successful [up to now] and you get it in spades. Mining is about 30% of the FTSE-100, but would any adviser put 30% of a client's money into mining?"
Mr Lloyd hopes MAM can now move into the growth phase it envisaged when it launched in 2008. "We came out very excited – and immediately had to go into survival mode."
But the business of knocking on doors and forging new relationships has begun in earnest for the firm, which numbers itself among the survivors.
The investment chief says: "Maybe I am just naturally too bullish, but for our clients with a long-term time horizon, they have weathered so much over the last few years, I think they should be in for a period where they are rewarded."