Equity volatility: 15 wealth and fund managers react
Mark Haefele, global chief investment officer, UBS Wealth Management:
We recommend considering exposure to hedge funds as a way of mitigating synchronised sell-offs in both bond and equity markets.
Net positioning among equity hedge strategies is moderate at present, leaving them relatively well positioned for such an environment, although many trend-following strategies have large equity positions and so could underperform.
Relative value trades should also still perform, and we aim to benefit from those through our tactical asset allocation.
Jim Wood-Smith, chief investment officer, Hawksmoor Investment Management:
The $64,000 question: is it a buying opportunity or is it a sell into the bounce?
Equities are expensive, especially US equities. For them to become irresistibly cheap markets have to fall a very long way and not just have a little wobble.
For us, US equities are still an expensive asset, just not quite as expensive as they were.
Markus Stadlmann, chief investment officer, Lloyds Private Bank:
The fall in equity prices during the last few days is possibly the start of a correction, which could last for a while. While the low probability of a recession makes the start of a bear market unlikely in the short-term, the best value can be found in choosing those less well-trodden paths.
Bond investors, for example, may be particularly nervous in the months ahead, due to the potential for inflation accelerating and short-term interest rates rising more strongly, a combination of which would make conditions pretty uncomfortable.
James Andrews, head of investment management, Redmayne Bentley:
The fundamentals remain very strong both in the US and around the globe in terms of economic growth and company earnings. Therefore, it feels a little soon to be pricing in material changes to interest rates (other than those expected) and, consequently, returns for less risky assets.
This isn’t to say the volatility can’t continue, as we have had a phase of very low volatility and some profit taking is natural following a prolonged period of exceptional returns.
However, given the positive fundamentals around the globe currently, it feels like any market pullback should be relatively short in nature at this time until we see a material change in global interest rates, and therefore the return on cash and less risky assets, not to mention a less favourable outlook for companies globally.
Fahad Kamal, senior market strategist, Kleinwort Hambros:
What should I do now? Keep calm and carry on. Corrections are normal. Forceful, unexpected sell-offs - and gains - can and do happen. In fact, that we have not had one in so long was odd.
Stick to the process: History shows making knee-jerk reactions due to short-term noise is a terrible strategy
Abi Oladimeji, chief investment officer, Thomas Miller Investment:
How bad can the sell-off get?
The important thing to note is that the available evidence suggests this is simply a correction of excess investor exuberance as opposed to anything more sinister.
Investors should remember that economic growth remains robust (albeit the outlook is nothing as rosy as the consensus view suggests), inflation remains relatively muted (despite fears about the risk of sharp increases in wage growth) and corporate balance sheets are healthy.
Before long, once the "weak hands" have been shaken off, the underlying positive trend is likely to resume, hopefully, at a more sustainable pace if we are to avoid a more protracted risk-off event in the not-too-distant future.
Chris Beckett, head of equity research, Quilter Cheviot:
Fundamentals for equity markets remain strong, the global economy is growing and corporate profits are rising. In this context, the fall we are seeing is mainly a valuation correction that is a buying opportunity for investors prepared to take a slightly longer-term view on the prospects for quality companies.
We are advising investors to keep their cool, focusing on advantaged companies trading on sensible valuations.'
Stephen Jones, chief investment officer, Kames Capital:
Company earnings, with expectations of delivery embedded in them from 2017, have been coming in just fine and remind us that the bottom-up stock picking environment is still good.
2018 was not going to be a repeat of 2017... it is good and healthy that the market has made this clear early on. Active managers now have a broader set of opportunities to pursue and manage around.
Emiel van den Heiligenberg, head of asset allocation at Legal & General Asset Management:
One week doesn’t make a bear market, but it’s the first sign of rising yields tempering investors’ enthusiasm elsewhere.
On balance, we believe that the macroeconomic outlook does not justify a deeper retreat in risk assets or even government bonds, albeit to a lesser degree – making the current market turbulence a potential opportunity to find value across a variety of assets.
Seema Shah, global investment strategist, Principal Global Investors:
My view on positive fundamentals and the market outlook is unchanged: the underlying strength of the economy warrants further gains in risk assets.
Investors should also keep in mind that periodic setbacks are likely during late-cycle stages - although bouts of volatility like the one we have just seen will severely test investors’ resolve.
Alex Scott, chief strategist, Seven Investment Management:
This episode of market volatility has not yet played out and could well involve more wrenching trading sessions for investors.
But the economic cycle has not yet turned, the growth outlook remains healthy, and this suggests that we face a market correction, not a sustained downturn or a recession.
For investors with a long time horizon and robust portfolios, periods such as this offer opportunity.
James Bateman, chief investment officer, multi-asset, Fidelity International:
Let’s be clear - in the long span of financial history, this is not news.
What we have seen is perhaps the greatest sign of real health in markets for a long time.
The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed Chair. It would be more worrying if markets didn’t react to all of this.
Steven Andrew, multi-asset fund manager, M&G Investments:
Contagion [from the US] to other markets suggests a degree of generic risk-off behaviour. The fact that European bonds have rallied when the apparent concern is rising global rates suggests some inconsistency in the prevailing narrative.
From a fundamental standpoint little seems to have changed. Increasing wages should ultimately be a good thing for the US economy and corporate profits.
These considerations and the rapid nature of [the repricing] suggests that there may be some non-fundamental drivers of this price action and our predisposition would be to add equity exposure.
Oliver Blackbourn, fund manager, Janus Henderson:
For a time following the global financial crisis, bad news was considered good news. Disappointing economic data was met with further monetary policy support or at least the expectation of it. This is no longer true and, judging by the panic of the last 48 hours, may have even reversed.
At the time of writing, markets have plunged at the signs of faster wage growth and a strengthening US economy that may lead to higher inflation and faster interest rate hikes. A quickly rising cost of borrowing is unwelcome at a time when levels of corporate debt already look high.
Don Smith, chief investment officer, Brown Shipley:
Despite the suddenness and speed of this market correction, there appears to be little sense of rising panic evident in the wider financial marketplace.
The shape of this market downturn, with the US the weakest of the major markets and the emerging markets complex the strongest, is the complete opposite of what you would expect if the market was in panic mode.
The nature of this sell-off points more to a technical correction rather than a market crash. It has been led by the US, which appears on many measures to be the most over-valued international market.