Speaking at the Schroders investment conference in New York last week, Jones, who heads up the Schroder US Smaller Companies and US Mid Cap funds, says it will remain almost impossible to add Alpha to a portfolio as long as the eurozone crisis continues to rumble on.
"To be honest, a lot of us here don’t know what to do," she said. "The third-quarter of this year was the most macro-driven that I’ve seen in my whole career."
"The Russell 2000 had the worst quarter on record, which was followed by October, which was the best month on record."
"High volatility does not usually portend to good returns, which is not a good sign for the markets."
According to FE Analytics, the Schroder US Smaller Companies and US Mid Cap funds have underperformed their respective Russell 2000 and Russell 2500 benchmarks over one- and three-year periods.
Performance of funds vs indices over 1-yr
Source: FE Analytics
The last 12 months have seen unprecedented volatility in both the Russell 2000 and Russell 2500. Although both of Jones’ funds have been less volatile than their benchmarks during this time, the disproportionate fall in stocks has inevitably hit her portfolios.
Jones also points to liquidity issues in the small and mid cap markets, as well as superior valuations in US large caps.
"The liquidity of companies in smaller companies has come down recently," she explained. "A small cap position that would have taken 23 days to sell one-and-a-half years ago now takes 45 days."
"I’d also say that relative valuations favour large caps at the moment. Small caps have outperformed since April 2000 but now I think there’s better value in larger companies, which now have stronger earnings growth."
Performance of indices since April 2000
Source: FE Analytics
Other industry experts at the Schroders conference were similarly downbeat. Nancy Lazar, co-founder of International Strategy & Investment (ISI), said the UK is already in a recession on a practical level, though not to the same extent as in Europe.
Wes Sparks, who heads up the US fixed income team at Schroders, said the risk-on risk-off environment will continue for at least six months and believes there is a 30 per cent chance the US will be in recession at some point in 2012.
However, Jones urges investors to stay grounded and not to panic.
"It is important to remember we’ve been here before," she said. "At the end of 1990 when debt was off the charts and commercial real estate was in a deep recession, I remember asking myself 'how are we going to get out of this?'"
"I am doing now what I did back then: picking good companies that will survive the crisis and selling those that are part of hyped markets."
"Back in 2007 I wanted to sell most of my companies, but in terms of opportunities I think things are much better now."
However, Jones sees tough times ahead for her sector until the macro issues in the US and Europe are resolved.
"I'm relatively confident that my companies will do well, but that's the best I can say," she finished.