Blog - How Our Investors Have Reacted To Recent Volatility
25 Aug 2011
The beginning of August proved to be a real turning point as global markets started to react negatively to ongoing sovereign debt concerns in Europe and the US debt ceiling resolution that was agreed at the 11th hour.
What we saw was stock market hysteria hitting the front pages with fears that we could be slipping back into a global recession and inflationary fears that were getting stronger. Coupled with the debt crisis and the downgrade of the US by the ratings agency S&P, there was plenty of news to fill the column inches.
Interestingly, we saw our investors react in many different ways.
On the news breaking we saw an influx of money being switched to the Cash Park facility. Within five days some confidence had returned due to the fact that investors started to believe the markets were becoming oversold. As a result we saw tranches of money moving back into the market and principally into funds which carried a strong defensive bias.
Generally income funds were being bought because of their defensive characteristics and because typically they come with lower volatility than their equity counterparts. There was also a move to gold themed funds and funds with an absolute return bias. It was the big safe havens with well known tried and trusted fund manager names which won through.
Perhaps the best example we saw were the number of investors buying the Jupiter Absolute Return fund run by Philip Gibbs. This fund had struggled with its performance this year however not for the first time the manager has proved he is capable of making good investment calls during extreme periods of volatility. His recent call was to create a large exposure to the Swiss franc which is commonly seen as one of the few safe haven investments in times of market nervousness.
We are finding that our execution only investors are not fleeing the markets, they are just being more cautious with their fund picks.
In recent days we have again seen extreme stock market volatility. Rumours that the US could be re-entering a recession were compounded last Thursday by a strong sell off in UK equities triggered by a poor set of retail sales figures for July. Coupled with global growth forecasts being slashed, the US market had lost 3.5% and the FTSE 100 finished the day about 4.5% down.
Today the UK and European markets have stopped sliding. Some of the leading names are now saying we are ‘bouncing along the bottom', which suggests that equity markets may have started to get over the initial shocks of the latest economic news.
We are in a new age of higher volatility post credit crunch, however we will continue to see on occasion extreme peaks and troughs in the market as we are seeing at the moment. Now more than ever investors need to evaluate their attitude to risk and their investment objectives, particularly if this hasn't been considered for some time. Aggressive investors ten years ago may not now be comfortable with the new higher levels of risk.
There are many people who stick to the principles of stock market investing, choosing to buy at times like now when the market troughs. For those looking for ideas, commodity funds such as the BlackRock Gold & General fund have proved very popular recently. Gold is commonly sought as an investment of relative safety during times of extreme volatility, nervousness and negative investor sentiment and also a hedge against inflation.
Two other funds that have proved very popular with our investors this month have been the Invesco Perpetual High Income fund and the Artemis Income fund. Both funds sit in the UK Equity Income sector and have always been popular funds with our investors. These funds offer an annual yield in excess of 4% and are full of large, blue chip and well established UK listed companies that derive their earnings overseas as well as in the UK.
For more ideas on where to invest take a look at our Hero Fund list of 75 best ideas, alternatively to see how TQ Invest clients invested last month, see our Top 5 Traded Funds feature.
The value of any investment and the income from it is not guaranteed and can fluctuate depending on investment performance (and currency exchange rates where a fund invests overseas). Yields will vary over time, therefore income is variable and not guaranteed. The use of derivatives can under certain circumstances increase volatility and risk beyond that expected of a fund that only invests in conventional equities.
