Quilter Cheviot’s David Miller has been kind enough to share his weekly Diary Of A Fund Manager with the gaim audience, when he explores the retirement choices which the Baby Boomer generation are now facing. David will be participating as a speaker on the first day of gaim 2015 ‘Allocating To Alternatives’, as part of our brand new interactive adventure game session Investor Quest (Or 2015: A Portfolio Odyssey). Alongside him on this session will be other influential investors: John Alexander, CIO, CLEMSON UNIVERSITY FOUNDATION , Adi Divgi, President & CIO, EA GLOBAL , Bernard Saint-Donat, Founder, DONAT & CO and Gerald Chen-Young, VP & CIO, UNCF.

Photo of David Miller


Volatility is on the rise across all asset classes. Equities had good and bad days last week, eventually ending down in both the US and UK. QE-fuelled Japanese and European markets moved higher. Bonds picked up after a poor month, but gold remained on a downtrend. The dollar continued its inexorable rise. The US retail report showed that consumers are saving rather than spending the low oil price windfall and news from China was below expectations. The weather took the blame in North America, whilst the Chinese New Year break excuse was trotted out on the other side of the Pacific. Forecasters remain optimistic about a pick-up in the Spring. European QE is causing all sorts of trouble, because spending €60 billion per month is proving harder to implement than expected. German government ten year bond yields are now down to 0.26% and the euro fell 3% against the dollar. These distortions will affect investment decisions around the world. US exporters are taking the hit, whilst European manufacturers are beneficiaries, but only if they have someone to sell to.

Last Wednesday I was in Birmingham to speak at the Defaqto discretionary fund management conference. As the day progressed demographic change and the implications for pensions emerged as the dominant theme. This resonated with a couple of weighty bits of research that I am working through at the moment in those rare quiet moments; the 60th Barclays Equity Gilt Study is suffering from content inflation (now stretching to 196 pages), while The Age of Responsibility from pension consultants Redington says what it has to say in only 135 pages, albeit the type face is smaller. The way in which we pay for our old age will have to change. All around the world ‘the state’ is withdrawing safety nets that we might have thought we could rely on. At the same time companies are trying to extricate themselves from open ended commitments by running down final salary pension schemes. All this at a time when central banks are conducting a massive monetary experiment through a combination of ultra-low interest rates and printing money. The problem is that the baby boomers (those born between 1945 and 1964) are living longer than expected so are causing as much trouble in their old age as they did at earlier stages of their lives.

Much is being made of providing freedom to individuals to plan for their own retirement. The link is being made between increased freedom and responsibility, which is a nice irony for those who in their younger days ‘tuned in, turned on and freaked out’. I am sure that many were on the receiving end of freedom and responsibility lectures from their parents who had risked all for their future. Linked to freedom and responsibility is an issue that receives much less attention other than condescending comments about buying Lamborghinis with pension fund savings, and that is risk. Despite occasional evidence to the contrary, governments and employers aren’t stupid. The reason that they are backing away from responsibility is because the promises made in the last century are too expensive to keep. This week BHS (formerly known as British Home Stores) was sold for £1, but the buyer also acquired the pension deficit of £100 million.

Income is a more important component of return for pensioners than for those still earning. On the basis of ‘never again’, the banking industry is being tied up with regulations designed to ensure that depositors’ savings are safe. Trading desks have been closed and balance sheets stress tested. Investment bankers are under threat of mass extinction and the lending departments are now run by cautious prudent types who want their loans repaid. All entirely sensible and something no one could disagree with.

Governments in deficit and companies looking for cheap funding are delighted to be able to borrow at historically low rates of interest at a time when income-hungry investors are pleased to oblige with their savings. Since 2009, according to the Barclays report, taxable bond funds have seen a net inflow of $1.2 trillion. About half of this has gone into investment grade corporate bond funds with the rest split between those with mandates to move up and down the risk spectrum and outright high yield, aka junk bonds when the boomers were young traders!

Fixed income ETFs have grown from nothing to a lot during the same period. However, to quote Santa Barbara based hedge fund manager Eric Peters: ‘Anyone without fear can be a genius bond investor when there are no defaults, spreads are compressing and the world is hungry for yield.’ The question is who is the buyer if collectively we want to sell? Not the banks, because they are taking a lot less risk these days. And not the final salary pension schemes either, which are busy buying low return sovereign debt in order to ensure that assets and liabilities are matched.

In recent years savers have acquired responsibility for their financial security and, therefore, have more direct exposure to risk than was the case in 2008 when governments and banks took the rap. I am told by poker addicts that the most important part of the game is to work out who is the sucker at the table, because this is the person whose money you are going home with. If you can’t work out who the sucker is, then it’s you. 

Written by David Miller. For more on investment expertise, visit the Quilter Cheviot website.