For Richard Philbin, CIO at Harwood Capital, one of the biggest own goals seen so far this year has been the tendency of investors to jump the gun. While not a new habit, the tendency to get too bullish or too bearish too quickly is often compounded by a decision finally to succumb to peer pressure and change strategy just before a turn.
A good example of this, Philbin says, is the decision made by a lot of managers to jump headlong into stocks that were likely to benefit from an increase in interest rates as soon as Ben Bernanke announced the beginning of the Fed’s tapering of its quantitative easing programme.
“Rates are only going to begin to go up again in the US sometime after the tapering programme finishes, which is still a while away. These stocks are unlikely to benefit yet, as rates will only begin to rise in few months,” he says.
This means that, those that have jumped in too early could end up either losing heart in the strategy too soon and get out at the wrong time.
Michael Fredericks, manager of the BlackRock Global Multi Asset Income Fund is also conscious of the risks posed by the fixed income space, especially in the higher risk area of that market.
“One of the dangers is that we have seen very low volatility across both the equity and bond markets and things have generally been going up in a fairly orderly fashion. As a result, there is a concern that people have been lulled into a false sense of security and are gradually being pushed up the risk spectrum without realising it.”
“The concern must be that, the more illiquid the market, the more quickly the price move down can happen. It may adjust more quickly than you can react. You will be able to get out but you might not like the price,” he said.
