It’s another choppy week in markets – although it seems like we could have written that for the past two or three months given the strong ramp-up in volatility.
The FTSE 100 looked like it was going to end the week up and rallied strongly this morning as banks jumped on the news that there could be a deadline imposed for PPI complaints.
However, some downbeat jobs data from the US – the country created just 142,000 jobs in September, rather than the 201,000 forecast by economists – caused the index to sink and pushed it into negative territory for the week.
In fact, most of the fund managers and investors we’ve spoken with this week are warning that markets will continue to be volatile over the coming months. One is even arguing that conditions seem to be ripe for passives to outperform active managers over the remaining months of the year.
Sorry to end the week with a collection of bearish stories, but here they are below. Everyone on the FE Trustnet team wishes you a great weekend.
Is it really time to cash in your equity funds and buy something else?
Global equities may have reached an inflexion point, we heard this week, and senior reporter Daniel Lanyon posed the question whether this could indeed be the time to cash in some equity holdings.
NN Investment Partners head of multi-asset Valentijn van Nieuwenhuijzen was one manager who says this may be wise. His portfolios across the risk spectrum are now underweight equities for the first time in more than three years.
Our data also backed up the trend as fund managers in the IA Mixed Investment 0%-35% Shares sector, which is the most cautious of the multi-asset sectors, have generally been selling down stocks and buying fixed income assets this year.
However more a cheerier outlook came from Peter Fitzgerald, head of multi-asset at Aviva Investors.
“The outlook for the global economy remains positive and recent events do not appear to warn of a significant global downturn or recession. Worse than expected Chinese growth and the first US rate rise since 2006 are legitimate concerns for markets, but both seem to have been largely ‘priced in’ to asset valuations for some time,” he said.
Click through to hear why he says you should still be buying equity funds and which areas of the globe Fitzgerald has been adding to in recent weeks.
Things are going to get worse so stick with absolute return funds, says City Financial’s Toogood
Staying with the more bearish theme and City Financial investment director Peter Toogood warned that investors should expect to see further volatility and be wary of the potential for more losses for the foreseeable future.
“In terms of strategy, and at the risk of sounding like a broken record, we reinforce our view that any buying at this point favours absolute and risk-diversified strategies,” he said.
“Volatility will remain elevated, as will the potential for further capital losses. These funds particularly suit novice investors who are forced into risk assets because of paltry returns in the bank and will be less than keen to nurse substantial losses.”
City Financial has six IA Targeted Absolute Return funds on its ‘recommended’ list but the only two multi-asset offerings are Invesco Perpetual Global Targeted Returns and Newton Real Return. Both have outperformed the FTSE All Share over 2015 so far but have lagged the rise in the Barclays Sterling Gilts index.
Performance of funds vs indices over 2015
Source: FE Analytics
However, Toogood did say that more long-term, aggressive investors could consider buying into some more beaten down parts of the market – if they are willing to put up with some more short-term volatility. Have another look at the story to see which areas he’s looking at.
Bennett: Active managers will struggle over the rest of 2015
In this article, news editor Alex Paget wrote how FE Alpha Manager John Bennett was concerned that active managers will find it difficult continue to outperform relative to the index over the coming few months.
Bennett, who is director of European equities at Henderson, admitted that it was a contrarian view given he is an active manager. But he warned that given some many of his peers had beaten their benchmarks so far this year by avoiding large chunks of the index (notable oil, mining and utilities), they would be hurt when those bombed out sectors inevitably mean revert.
He said, despite the surging popularity of active share and the belief that the higher a fund’s active share the better, looking more like the index may be the best way to outperform over the short term as all active managers are now seemingly holding the same stocks.
“At a time when it’s been easy to beat an index by disowning large parts of it, that really strikes me that the index is getting ready to make a comeback against active managers,” Bennett said.
“It will, in my view, be a short-term mean reversion. However, we are shaping up for the big ugly ducklings of oil and resources to make a sharp recovery. It would be a nice sting in the tail for Q4 year end for most active managers if those areas have a V-shaped mean reversion to the upside and come and take all that alpha away.”
“In other words, that’s what indices do and I think we need to be at least mentally prepared for the fact that perhaps too many active managers are camped in the same places: growth stocks and mid-caps.”
The biggest mistakes investors are making, according to advisors
In this article, reporter Lauren Mason looked at research by Natixis, which outlines the investor behaviour that is worrying financial advisers the most at the moment.
The first issue to be brought up was the idea of emotional investing and the opposing views that both financial advisers and retail investors have – while 83 per cent of financial advisers believe investors need to be more pragmatic, less than half of retail investors surveyed believe that emotional investing is problematic.
The survey also found that individuals believe they need an average return of 9.7 per cent above inflation to meet their financial goals, yet 84 per cent choose to prioritise asset safety over performance.
“Independently, each represents a significant problem for investors. Together, they form a perfect storm that can leave clients without clear direction on how to handle the ups and downs that are an inevitable part of the investment experience,” the report stated.
Alex Wright: How I got Fidelity Special Values back on track
FE Alpha Manager Alex Wright celebrated three years as manager of the Fidelity Special Values trust back at the start of September.
It was not just the anniversary he had to celebrate, however: FE Analytics data shows the trust has made 91.55 per cent over this time, compared with 53.79 per cent from its IT UK All Companies sector and 24.65 per cent from its FTSE All Share benchmark.
Wright says he generated this outperformance through a bottom-up process looking for individual change stories across the market.
“There has been a benefit of being overweight mid and small-cap companies, which is my style, so looking for those more uncovered gems further down the market cap spectrum,” he added.
