Increased market volatility is “healthy” event

Fund managers have issued reassurance about the renewed volatility in stock markets.

Toby Nangle, global co-head of asset allocation at Columbia Threadneedle Investments, says there is “nothing in the equity market moves to date to give us concern” that economic growth and earnings per share forecasts will be put in jeopardy.

Selling has been “begetting” selling, he said, and though it was not clear when this would end, Nangle – who manages the Threadneedle Dynamic Real Return Fund – said his team had been adding, in small sizes, to favoured equity positions with a view to capturing value offered by forced sellers.

“The strong market performance of 2017 reflected, to a meaningful degree, investors pricing assets for a much better economic and earnings environment. The sharp drawdowns of the last week do not, to our minds, reflect a sharp deterioration in this outlook,” Nangle said.

Matthew Brittain, investment analyst at Sanlam UK, said recent market volatility was a healthy event.

“While we hate to see our investments going down, we see this small shock as a healthy event as it reasserts fundamentals – as opposed to a story – and prevents an imbalance from becoming a bubble,” he said.

And reflecting Nangle’s stance, James Bateman, chief investment officer within multi-asset at Fidelity International, said the recent market correction “remains a buying opportunity”.

“We are now officially in a ‘correction’: US equities have fallen over 10% from their peak in late January,” he wrote in a note to investors.

An unusually strong period of returns had been brought to a close, he said, but added that this was a return to normality rather than a departure from it.

“I continue to believe that recent market declines represent a buying opportunity. While bear markets can appear out of nowhere, continued strong macroeconomic data and solid fundamentals point to this being a setback that might mark the start of the ‘late cycle’, but not the end of the cycle itself.”

A late cycle can last from a few months to a couple of years, he said, so whilst “we should expect continued volatility, now is not the time to capitulate – remaining (cautiously) risk on feels the right approach”.

Other fund managers have recently moved to calm nerves, with one urging investors to “keep their heads”.

©2018 funds europe



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