Bring on the correction

Does the extraordinary rise in share prices in recent months mark the start of a new bull market, or simply a colossal rally in an ongoing bear phase? Given the seeming revival in consumer confidence, firming up in house prices, the return to a more normal spread for Libor and other positive indicators, the odds seem to be on a new upswing.

However, the rally has taken prices up to levels which, if there is any faltering in the underlying economy, could trigger something of a correction. In some ways, I would welcome a development of this sort.

At the end of June, I switched my main pension fund from a decade-long investment in a with-profits fund to a mixture of corporate bonds and equities. It has been ticking up nicely in value since, but its performance has been held back by the fact that a third of its value is still in cash. So, while the invested portion of the fund has increased by more than 12 per cent, the overall figure is slightly under 8 per cent.

A correction would allow me to inject some or all of the cash back into the market. I have enough in reserve to double the current weighting in equities, but I want to see some sort of pullback in the index before I start to put this plan into effect.

There has also been a variation in the perform-
ance of the funds in which the scheme is invested. The best performer is the Schroder Mid 250 fund, up 22 per cent over the period, while M&G Recovery has turned in a gain of around 16 per cent and Thread-
needle American Select Growth has seen a gain of 14 per cent. Newton UK Opportunities brings up the rear with a 9 per cent rise.

My biggest weighting in corporate bonds in this scheme is in M&G Strategic, which has morphed into a new fund with wider objectives in terms of the instruments that can be used, including money market instruments, derivatives and investment in other funds. This fund was up 7.8 per cent in July and August.

My other two pension funds have also risen in value. While these gains have not yet come near to recouping the 25 per cent lump sum I removed from the largest of the three funds, recent gains have softened the blow. Most of the cash released from the main fund now sits in my non-pension portfolio. Some of this has been invested: the rest sits awaiting a buying opportunity.

I am also looking at rebuilding my weighting in collectables. I want to keep this primarily invested in rare coins. These have performed consistently well in recent years. There have been credit crunch-induced setbacks in more fashionable alternative investments, notably in contemporary art and wine. Though prices are now starting to recover, the gains look rather tentative.

Forestry, a spectacular investment in the last few years, could also be entering trickier times. Timber prices have fallen sharply in the last year as a result of the recession.

In coins, local auctions have yielded little of investment interest. A recent trip to North Yorkshire to view Isle of Man coins proved fruitless: most were modern while the few rare ones were of poor quality. I am pinning my hopes on the auctions around the time of the Coinex fair in London in late September.

The gold price seems close to a crucial stage. If the price breaks down, I would be looking to sell fairly promptly.

Peter Temple is an active private investor, writing about his own investments. He may have a financial interest in any of the companies, securities and trading strategies mentioned.