“Whatever happened to the ‘pain trade’?” It is not the sort of question I expect to hear from many bond fund managers but, given suburban madam Cynthia Payne had died the week before, I figured it counted as industry drinks party chat. Anyway, I will go a long, long way to avoid talking about the yield curve so I merrily offered my thoughts.
Maybe a minute later, it occurred to me we might be at cross-purposes – the look on the manager’s face being a significant clue – and so I deferred back to him to learn more about what was clearly shaping up as a column for this parish. For the second time in quick succession, I then managed to grasp the wrong end of the stick.
For whatever reason, I formed the impression the ‘pain trade’ was a more active endeavour – you look at an investment the wider market is shunning and decide they are wrong and you are right to buy, no matter how queasy it makes you feel. I have expressed this idea before in the context of investing while feeling sick to one’s stomach but ‘pain trade’ would definitely be edgier.
It turns out the term is more passive, however, as it refers to investors sweating about already owning equities in 2008, say, rather than about whether to buy them in 2009. Describing when a popular investment takes an unexpected turn for the worse therefore, it is not a badge of honour for the hardy few but a kick in the teeth for the herdy masses.
This is disappointing for two reasons, the first of which is it commits a whole host of investment sins – taking a short-term view, following the crowd, ignoring price and so on. More importantly, at least for my own immediate purposes, it does not offer quite such an elegant segue into emerging markets as I had intended.
For, much as it may often seem otherwise, I do not make these columns up as I go along and I had planned to wonder if now was a painful if ultimately good time to revisit the asset class or if we still had some way to go because markets around the world seem to keep pulling back from anything approaching capitulation.
I had then thought to suggest one small indicator might be the recent decision of Goldman Sachs to merge away the firm’s historic, if now rather skinny, ‘BRICs’ fund. The BRIC economies, as the book title next to my name below will tell you, is an idea with which I have some affinity – albeit little sympathy.
I was originally asked to write solely on BRICs but I never really understood the point of limiting one’s options – hence the expanded title. Presumably Goldman Sachs now feels similarly or perhaps, with Brazil, China and Russia in the doldrums, it worried running an ‘I’ fund would get the firm into trouble with Apple. Either way, let’s hope this means all country acronym funds can now Russia-India-Peru.
Julian Marr is editorial director of Adviser-Hub and co-author of ‘Investing in Emerging Markets – the BRIC Economies and Beyond’
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