The first half of 2008 saw losses recorded across all four private client risk categories – Cautious, Balanced Asset, Steady Growth, Equity Risk - for both sterling and dollar private discretionary clients in the latest Asset Risk Consultant figures. This is the first six month period that losses have been recorded across all four PCI risk categories since the inception of the indices in December 2003 by the Channel Islands based consultancy.

With financial market conditions remaining difficult in the second quarter of 2008, the performance differential between discretionary investment managers has remained high. By way of example, for a steady growth portfolio (the most common discretionary investment mandate) for the first six months of 2008 a sterling investor should expect to see losses in the region of 6.0 to 8.1 per cent; a dollar investor losses in the range of 3.8 to 6.4 per cent.

ARC say that despite many discretionary managers adopting a multi-asset class approach to building portfolios, it is clear that there have been no safe havens during this market downturn except for government bonds, an asset class that the majority of discretionary managers have been avoiding for several years.

For the first time since the bear market at the turn of the century, many private client investors will be looking at their portfolios and realising that over the last 36 months they would have achieved similar returns by holding cash.

The message from ARC is that multi-asset class investing is not a panacea providing preservation of capital in all market conditions. Taking a longer time horizon, over the last three years discretionary private client investment managers have, on average, struggled to beat the returns from cash. In fact, going back over the last ten years, cash has out-performed all the traditional asset classes.

For those able to take a truly long term investment perspective, the statistics supporting equity market investment remain compelling. However, the firm thinks it likely that many private investors will re-assess their risk appetite over the coming months. For such investors ARC would urge caution – the past is indeed a poor predictor of future returns and it may not be long before financial market participants begin to look beyond the current global economic slowdown and sentiment turns more positive.