Timing the market is notoriously difficult for investors and although the phrase ‘buy low, sell high’ sounds easy in practice, in reality it is much more difficult to spot these opportunities.
Take last month as an example, when global equities – as measured by the MSCI AC World index – lost 5.71 per cent.
The problem for investors, however, is when they are presented with a market sell-off.
Given the length of the post-financial crisis market cycle it has become trickier to know whether the market has begun its long-anticipated correction or whether it is experiencing a short bout of volatility.
Performance of index in October 2018
Source: FE Analytics
Below, FE Trustnet asked several fund managers covering different strategies to see whether they added, sold, maintained exposure during the most recent bout of market turbulence.
Asset manager Baillie Gifford has a strong bias towards growth stocks, which were knocked particularly hard in the latest sell-off, having outperformed for much of the past decade.
Iain McCombie, co-manager of the five FE Crown-rated Baillie Gifford Managed fund alongside Steven Hay, said he had considered adding to his portfolio but had, as yet, not done so.
“We thought about it but not yet,” he explained. “We are still thinking about it. What we are trying to work out, based on the companies’ fundamentals, is if there is anything we should be worried about?”
While Aberdeen Standard Investment’s Thomas Moore recently claimed that October was the start of a shift in style from growth to value, McCombie said the fundamentals for his businesses remain strong.
“Let’s be honest: we have had a pretty good run in fundamental terms for a lot of our companies but we are not naïve,” the manager said. “We have cycles and recessions at some point and we have to think about what is happening.
“We haven’t done anything because we think our companies are fine and the fundamentals are okay,” he said, noting that at this stage he would be more minded to add than sell.
FE Alpha Manager Spencer Adair, co-manager of the Monks Investment Trust, agreed with his Baillie Gifford colleague and has also looked at, but has so far decided against, adding to the portfolio.
“When we took over in 2015 the trust was neutral – it had no gearing. The market has sold off twice since then and each time they have sold off by a reasonable per cent we have added around 3 per cent gearing,” he said.
Currently the trust is 6 per cent geared but the long-term level the manager expects is 10 per cent, meaning there is scope to add at appropriate times.
“We have been waiting for a market discount or sell-off and [while] this may or may not be but we have some powder there [if needed],” he said.
Another sticking rather than twisting is Jaisal Pastakia, who runs the LF Heartwood Income Multi Asset fund.
That said, the manager highlighted emerging markets as particularly interesting having not only sold-off aggressively in October but also for much of the year.
Indeed, while the MSCI World index is up by 3.55 per cent year-to-date, the MSCI Emerging Markets index has lost 10.62 per cent.
Performance of indices over YTD
Source: FE Analytics
“Our allocation has remained unchanged over the course of the year and that is because external factors have weighed on emerging market equity performance,” he said.
Indeed, a stronger dollar, weakening global growth, blow ups in Turkey and Argentina as well as geopolitical tensions such as the trade war between China and the US are all reasons why the market has struggled in 2018.
“But we haven’t cut and the reason for that is [because] when you look at the falls, valuations don’t look too bad,” he added.
Pastakia said some parts of the market are pricing in an emerging market crisis, which he does not believe will occur. However, for him to add exposure he would need to see “certain headwinds abate”.
Another manager who isn’t topping up is Lesley Duncan, manager of the £324m Standard Life Investments UK Ethical fund, although she has used this as an opportunity to stress-test her portfolio.
“I always go back and look at why I own these stocks in the first place during those dip periods and get to comfort levels around that,” she said. “I would say I’ve been relatively happy with how my portfolios have been positioned.
“They are relatively cyclical-facing portfolios but with elements such as management restructuring initiatives or operational improvements – so it is not all about you needing a good domestic print to make the portfolio go up.”
Conversely, Standard Life Investments UK Equity Unconstrained manager Wesley McCoy has been adding to his portfolio.
“All through my career anytime there have been these moments where things become very anxiety- or panic-driven I have learned from the other investors I have worked with that you either hold your nerve and don’t panic or you should try and go against the tide,” he said.
“For me it was a chance to think about stocks that we [believe] are a good idea but you were [previously] paying a lot for,” McCoy added.
One such example is Countryside Properties, which sold off heavily in October as it was viewed by the market as a housebuilder. In reality, the firm is part of a partnership initiative, working with local authorities to build social or affordable housing.
With the government allocating more funding in the budget to such housing, it gives the firm more stable demand.
Performance of stock over YTD
Source: FE Analytics
“I have watched Lesley own it and it has been very good,” he said. “But I have been a bit greedy and wanted cheaper and you think I’ll never get my chance so when you do you have to pounce on that.
“I always think you should have a list of stocks that you would buy at a different share price – not just a list of stocks that you will always buy and always sell.
“Either you do nothing or you do lots. There is no in-between.”
Another ‘buying the dip’ was Comgest Growth Japan fund manager Richard Kaye, who said he had added several stocks in the sell-off.
The firm has a quality-growth bias, another area of the market that fell further than some of the more value names.
“We actually started adding back in March when a lot of this stuff started to hit the ticker tape even though the actual news hadn’t happened yet,” he said.
Two firms he has bought are Fanuc – a robotics maker than should be able to capitalise on the labour shortage requiring more manufacturing to be done autonomously – and Pigeon – the largest maker of baby bottles in China.
While these two stocks were bought because they had fallen, some stocks did surprisingly well. “Some stocks were up 11 per cent in one week because everyone knows that these are growth companies,” he said.
“If you think that growth has died because of China’s issues with the [US] mid-term elections then get out of here. It is not going to happen. Growth is still there and we are adding when these stocks are falling.”