Our content this month are as follows:-

• Performance during 2008
• In the news
• Mock employment tribunal
• Books we have read
• Quotes of the month

Over the past 12 months we have been analysing the performance of individual client portfolios against the FTSE All Share and the World Index. We are including with this newsletter a PDF of the performance of each individual portfolio for the year 2008, one of the worst in stock markets in living memory.

As you will see, the performance of our portfolios has been far better than both of the benchmarks; indeed, given our global approach, the most appropriate benchmark is the World Index and each portfolio has easily outperformed that. The majority of clients are in portfolios 40, 50 and 60 and the defensive qualities of these portfolios has made things a great deal better than they otherwise would have been. The figures for the Index do not include charges, naturally, but our figures take account of the results after all charges.

It is interesting that, in a year when the global funds industry had a net outflow of $320 billion, that Dimensional's funds have seen a net inflow of $7 billion. The reasons for this are simple:-

Whilst "alternative" forms of "diversification", such as commodities, hedge funds, private equity and structured products proved to be ineffectual, diversifying globally and utilising high quality bonds within portfolios has worked once again to reduce volatility.

Dimensional make Institutional Grade funds available to us, one of whose major features is low charges; another major feature is minimal trading or churning, which also keeps costs low.

When we construct portfolios utilising Dimensional funds, we take account only of disinterested, high-quality (often Nobel prize-winning) research. Ignoring "flavour of the month" investments and the "new big thing" means we can put together portfolios which always make sense no matter what the financial conditions.

Charges

A report in the Financial Times of 16th of February 2009 confirms that retail investors in actively managed funds continue to pay higher and higher charges. Average annual management fees for retail funds are now 1.6% per annum, having risen from 1.3% per annum in 1995. Our experience in times like this is that active managers cynically increase fees to compensate for their reduction in income from their poor performance. Remember that this is only the cost of buying the fund; trading charges will also be a feature, albeit well hidden, and there are often initial fees of up to 5%. The funds that we purchase on behalf of clients cost between 1/5 and 1/3 of this average and form an important part of our value proposition.

A column by John Kay in the Financial Times of 31st January also looked at charges and some of his comments are worth repeating: -

"There are more funds investing in shares than there are shares to invest in. This situation does not make sense and is both cause and effect of the high charges."

"This measure of choice would be less confusing if all funds, managers and advisers were excellent, but most are not."

The column is effectively an extract from his new book, "The Long and the Short of it: Finance and Investment for Normally Intelligent People who are not in the Industry". The book is our selection for this month and is reviewed below.

Investment experts

The weekend Financial Times carries columns from several investment experts, who share their experience with us all. These gurus keep us spellbound with their tales of trading, share spotting, charts and, best of all, "gut feelings". The FT of 31st January gave us an update on how these oracles had performed during 2008, a difficult year when surely their expertise and insights would give them an edge; unfortunately they did extremely badly. Their results ranged from -30.1% to -42%; active managers like to tell us that they can outperform markets in difficult times and whilst this is not a scientific survey it is interesting that those specially chosen by the Financial Times to advise us have achieved such dire results.

Talking of financial gurus, we cannot help but notice that Harry Dent has published a new book; Mr Dent is the author of "The Roaring 2000s, a bestseller at the time of the technology boom and in it he confidently predicted that the Dow would be around 40,000 at around this time. Unfortunately for him it is round about 7300 at the time of writing. Undaunted Mr Dent has published his latest prediction, entitled, " The Great Depression Ahead", in which he once again gives people what they want to read, based on the current economic conditions.

The moral is, do not trust gurus, trust a strategy.

The Institute of Directors, together with No 5 Barristers Chambers and Irwin Mitchell are holding another of their highly successful Mock employment tribunals. These are based on real cases and presided over by an employment tribunal judge and can offer illumination and insights into the whole process. With many employers facing issues over redundancy this may be a timely event.

Full details are attached. It takes place on the 19th March and if you are interested please move quickly as you need to have booked by 6th March.

We have recommended John Kay previously and are happy to do so again as he has written an extremely informative, straightforward and illuminating book about investment entitled "The Long and the Short of It". The book contains valuable advice for people both inside and outside of the investment business and as the author says himself, "After reading this book, you will understand the principles of investment letter than most people who offer financial advice to retail investors." We agree and would wholeheartedly recommend this book to you.

It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.

"Unless you try to do something beyond what you have already mastered, you will never grow."
Ralph Waldo Emerson

"Some men see things as they are and say "Why?" I dream things that never were, and say, "Why not?"."
George Bernard Shaw