The big falls in global markets over the past week or so have left many wondering whether a buying opportunity is on the card or if it is the start of something a whole lot more sinister.
All of the causes point to China, which devalued its currency last week to make its exporters more attractive and to shore up confidence in the market. However, recently published data suggests the world’s second-largest economy is slowing at a much faster rate than many expected, again causing fevered selling in stock markets.
Equities in the US, Europe, Japan and China are all down this week (some have already lost 4 per cent today) while the FTSE 100 is trading below 6,300 meaning the blue-chip index is down more than 10 per cent since April.
Just to think this has all happened during a time when markets are supposed to be quiet…
All this negativity has kept us very busy here at FE Trustnet, along with a number of star manager interviews and our access to bucket loads of data. Hopefully your portfolios haven’t been too badly hurt over the past few days, but in an attempt to cheer you up, here are five cracking articles for you to read.
From all of us here on the editorial team, have a lovely weekend.
What to do if you think the market is about to crash
First up, reporter Lauren Mason spoke to a panel of financial experts and asked how investors could adapt their portfolios if they’re feeling nervous about market movements, now the FTSE 100 is down by more than 3 per cent over the year.
Performance of index in 2015
Source: FE Analytics
The solutions offered were varied, from boosting cash weightings and buying into absolute return investment vehicles to upping exposure to infrastructure.
The general consensus, though, was not to sell out despite the impact that various global headwinds have had on the UK blue-chip market.
Adrian Lowcock, head of investment at AXA Wealth, said: “Investors should always be prepared for a crash: they often occur when least expected and they’re hard to predict. Therefore investors should be prepared at all times for this.”
“Do not panic and sell out – this can be hugely destructive to the value of your investments so remain focused on your objectives.”
Funds that were recommended to cushion the blows of paltry market performance included Standard Life GARS, Troy Trojan and Newton Real Return.
Which funds are topping FE’s risk-targeted sectors?
Given the popularity of risk-targeted portfolios, FE last year launched a universe for these funds to allow comparisons that are difficult to carry out when using the Investment Association sectors. This week we reviewed the funds in them, to see which have posted the best returns since the start of 1 Jan 2011.
The MyFolio funds run by Standard Life Investments’ Bambos Hambi appear to be standout performers, holding the top spot in the three of the four sectors they are present in. Hambi runs quite a few risk-targeted funds across six ranges, so we’ll be catching up with the manager soon to take a closer look at them.
In the lowest risk sector (UK RMA Risk-targeted Multi Asset Risk Band 1), Hambi’s Standard Life Investments MyFolio Managed II fund returned 30.79 per cent between 1 January 2011 and 18 August 2015, compared with a sector average of 20.30 per cent.
It also stacks up well for metrics such as annualised volatility, maximum drawdown, which shows the most an investor would have lost if they had bought and sold at the worst possible times, and Sharpe ratio, which measures risk-adjusted returns.
But other funds in the sector’s top quartile since the start of 2011 include Santander Atlas Portfolio 3, FP Verbatim Portfolio 3, SVS Cornelian Defensive and Standard Life Investments MyFolio Market I. Take another look at the article to discover the funds topping the remaining four FE risk-targeted sectors.
There is no bond bubble that is about to burst, says Pattullo
Like equities, bonds have had a tough year this year with many suggesting that a bubble in the asset class is about to burst as monetary policy in the US and UK starts to tighten.
Performance of indices since April 2015
Source: FE Analytics
These fears have recently hit the mainstream media as well, with BBC’s Newsnight running a feature on the potentially dire consequences of a major back up in fixed income yields. However, we spoke to FE Alpha Manager John Pattullo – who heads up Henderson Strategic Bond – says those concerns are massively overblown.
He says growth is set to remain too weak and inflation too low for bond yields to spike massively and has therefore been upping his exposure to the asset class over recent weeks.
“No, I don’t think there is a bond bubble. If there is going to be no inflation, you should be buying 30-year gilts at 2.6 per cent. If you do think inflation is coming, then you shouldn’t, but I don’t really see where that inflation is going to come from.”
“I think a lot of our competitors are running short duration thinking bond yields are going to rise. We have been adding to our duration exposure as we think bond yields will actually move lower from their current levels.”
Dampier: The fund I’m eyeing up to replace Richard Buxton’s Old Mutual UK Alpha
Senior reporter Daniel Lanyon spoke with Hargreaves Lansdown’s Mark Dampier about the summer hoo-ha around the dual roles now undertaken by star manager Richard Buxton.
The manger heads up the £2.4bn Old Mutual UK Alpha but has also recently become head honcho at Old Mutual Global Investors, leading Dampier to consider switching out of the popular fund should it become apparent Buxton is overly spread between the markets and the marketing.
“At the moment I just cannot view it as being totally positive. It some ways it is still too early to say anything but it is hard to say anything positive either, that is the real point,” Dampier said.
“I'm not being negative deliberately but I find it hard to put a positive spin on it. It may be easy for them to do it but the history of fund managers also being CEOs has showed you cannot do these two roles easily.”
Believing it is hard to find someone to replace Buxton, he is eying up one particular fund. Click through to see which fund he recommends.
Why India is bucking the trend for pessimism in emerging markets
Over on Trustnet Direct, Anthony Luzio looked at why with the prospects for emerging markets plummeting faster than China’s stock market, many fund managers remain largely positive about India.
On a recent visit to the country, Stuart Parks, head of Asian equities at Invesco Perpetual, said there are signs that prime minister Narendra Modi’s reform agenda is beginning to take shape. As a result, he said earnings could surprise on the upside in the years ahead.
Among the building blocks Modi is putting in place are a more efficient tax system, an improved road network and greater access to power.
“We expect that real GDP growth in India will gradually trend towards 6 per cent, from the trough of 4.5 per cent,” said Parks.
“Although the infrastructure is still weak, any small improvement should be influential in stimulating growth. In addition, the country’s cheap labour costs, low consumer debt-to-GDP levels, its edge in the IT industry and favourable demographics should continue to play a positive role.”
