Everyone is suffering from “event disease” and sitting on piles of cash, meaning most investors have missed out on making money this year, according to Hargreaves Lansdown’s Mark Dampier (pictured). 
The research director says that despite strong performances across asset classes, there is a good chance markets have further to run given how bearish most investors are at the moment.
Over the course of 2016, traditionally ‘safe’ fixed income assets and large, dividend-paying ‘stalwart’ stocks or ‘bond proxies’ have indeed been popular, although they have started to cool more recently.
This hasn’t just been the result of ultra-loose monetary policy intensifying the search for income; geopolitical events over the course of the year have led many investors to sit tight given that markets tend to dislike uncertainty.
That said, many investors have been surprised by market reactions so far this year, as the FTSE 100 index rallied after the shock EU referendum result and the S&P 500 showed little reaction to the election of Donald Trump last week.
Performance of indices in 2016
Source: FE Analytics
The fixed income space has also done well so far this year, despite yields beginning to rise over recent weeks. Since the start of 2016, 10-year gilt yields have fallen by 26.53 per cent and 30-year gilt yields are down 22.54 per cent.
At the same time, bearish sentiment among investment professionals has been widely reported over the course of the year. In an article published last month, Rathbone Income manager Carl Stick said he willing to buy into “defensive cash cows” and bond proxies despite their high valuations, as he thinks markets could be set to struggle over the medium term.
Dampier, however, is feeling more positive in terms of finding opportunities than he has done in a while and believes equities are particularly attractive at the moment.
“I’m much more gung-ho on everything because everyone is so bearish,” he said.
“I have never seen a level of bearishness like this - I would probably have to go back to 1988 – amongst professionals, amongst retail clients, the bearishness is just incredible.
“Bearing in mind that markets have recently been flirting with all-time highs, I would normally expect to be saying to people, ‘no I don’t think this is a great time’ or ‘everyone is too excited’ but they’re not.
“Strangely enough, that makes me more bullish. I completely agree that asset classes don’t look dirt cheap, but the levels of bearishness are quite extraordinary in my view. It’s the most hated bull market of all time in my career and that’s why I think it’s going to go higher.”
The research director references 1988 because of ‘Black Monday’ in October 1987, when stock markets around the globe lost vast amounts of money over a very short period of time.
While the definitive cause is unknown, potential catalysts for the crash included programme trading, market illiquidity and extremely bullish investor sentiment up until that point.
“What was interesting in 1987 was, when the market fell, all the buyers were in. Everyone, and I mean everyone, was euphoric and people were actually taking mortgages out to buy the market in the summer of 1987,” Dampier explained.
Performance of index in 1987
Source: FE Analytics
“What you have to remember is we had the Royal Life event, which was the launch of a huge new unit trust, about four weeks before the whole thing slid.
“It took millions and millions and millions of pounds. So when the fall started, there was no-one there to support it. It was basically hitting their pockets because all the buyers were in, so there were no more buyers left in the market.”
In contrast, he says today most people are sitting on large amounts of cash and are significantly bearish. As such, if markets were to take a tumble, he reasons that there would be a much larger number of willing buyers able to take advantage of any dips.
“Obviously you could have some kind of natural disaster or something coming out of the blue, if there’s suddenly a huge earthquake in San Francisco that knocks out Silicon Valley or something like that – some unknown – that’s different,” he continued.
“If something comes up that is completely not in the market, you might have problems. But there’s so much cash that I still think buyers will come in. That’s why I’m not that bearish on the market.”
In terms of investable assets, Dampier argues that far too much time is spent trying to analyse potential events and how they could impact different markets. This time is wasted, he says, given that it’s impossible to time markets.
“[Investors] have been wrong on every event – everyone is suffering from ‘event disease’, where every event stops people doing anything. They got Brexit wrong, they got Trump wrong and, even if you get the event right, could you honestly tell me you would have got the effects on the assets afterwards right? Most people wouldn’t,” he said.
“If one of those decisions is wrong, it probably cancels out you making any money. My own view is people are trying to move money left, right and centre without really knowing what they’re doing because no-one actually knows what is going to happen.
“So stop messing around, buy some decent fund managers and stick with it.”
In an article later this week, FE Trustnet will look at Dampier’s top equity income trust picks that are trading on attractive discounts.