Omaha’s sage may be, for once, behind the curve

For decades US billionaire investor Warren Buffett has been the lodestar for legions of small investors around the world. So his remarks last week that he was eager to invest in Britain regardless of the outcome of Brexit will have heartened many here.

He said he was not worried about our leaving the EU and was “ready to buy something in the UK tomorrow.”

It is hard to think of a more reassuring endorsement than that from an 88-yearold tycoon whose homespun philosophy

– a combination of investment research, value investing and patience – is widely followed in America and the UK.

Buffett, the chief executive of conglomerate Berkshire Hathaway, told the Financial Times “we welcome the chance to put money out any place where we think we understand and sort of trust the system. We’re never going to understand any other culture or the tax laws or the customs as well as the US, but we can come awfully close in Britain.”

On Europe, he was less keen. “Europe”, he said, “was grappling with populism, a slowing economy and rising tension within

its union”. He added it was “very tough” for the EU because member states spoke different languages and had “entirely different fiscal situations”.

His remarks follow a lengthy period in which UK assets – shares in particular – have been distinctly out of favour with investors here and abroad. Billions of pounds have been pulled out of funds and trusts exposed to UK shares.

But is Buffett leading the pack, or is he following the herd? Since the start of the year there has been a marked uplift in the UK market. The FTSE100 index has clambered up 11.5 per cent since end December to 7,428, crossing above 7,500 at one point last week. And the FTSE250 Index, comprising medium-sized companies with the bulk of their earnings coming from Uk-facing operations, has done even better, rising by 16 per cent since end December to 19,856. This has lifted ISA and pension fund portfolios, putting investors in a more positive frame of mind.

On this perspective, the “Sage of Omaha” looks like being behind the curve. Barring a dramatic uplift in business confidence and company earnings it is hard to see how much further this rally can be extended. And with Brexit uncertainty now looking set to extend until 31 October, investors may feel there is time enough to wait before anticipating any post-brexit relief rally.

Sentiment, for now, has been buoyed by mildly supportive economic data – continuing rises in numbers employed and in average earnings, and warmer weather over the Easter break which brought a much-needed fillip to retail sales, boosting morale along the supply chain.

Has the Brexit pessimism and doom-saying been overdone? Two factors are at work: apprehension about Brexit impact itself, with particular concern over trade disruption; and the prolonged uncertainty that has exasperated business leaders.

For the moment, business conditions are not as dire as widely feared in the final quarter of 2018. And the persistence of ultra-low interest rates continues to encourage investors to seek returns in equity-risk assets, where dividend flow has been breaking records.

However, while the market is unlikely to fall back sharply, we are still well short of an upturn strong enough to lift the economy out of its current subdued and lacklustre condition. There are also continuing worries over a Us-china tariff war, and a higher oil price, so investors may opt to wait to see what Buffett actually buys before moving up the risk ladder.

For others, there is already too much risk – and a strong case for heading in the opposite direction to Buffett.

There is a widespread concern that we are near or at the end of what by any standards has been a long investment cycle. And investors should now prepare to lessen their equity exposure ahead of a global slump by the end of the decade.

Such is the warning from Seneca Investment Managers, specialising in multi-asset value investing. The group has been cutting its exposure to equities over the past two years. Chief investment officer Peter Elston says evidence has been mounting that the global economy was “approaching a downturn”. He argues investors need to gradually prepare for a “global slump” that he believes will start “around the beginning of the next decade” and has moved increasingly underweight in equities since the third quarter of 2017.

Last year it cut its US equity exposure to zero. He has also reduced allocation to the UK, though not by as much as valuations have been affected by Brexit.

Buffett may feel it’s time to fold up the umbrella. Elston thinks it’s time to take shelter.