According to the manager of JP Morgan AM’s Cautious Total Return Fund, investors need to review their asset allocation in light of the current volatility in global markets.
Talib Sheikh, also managing director and senior portfolio manager at JP Morgan AM, said it was important to prepare for both upside and downside movements.
“The recent market volatility and the performance of individual funds during that period have led many investors to question just how cautious their cautious funds really are,” he said.
As a result, he was reducing his credit exposure but continued to hold equities.
In the long term, however, Sheikh said he was optimistic but believed volatility would persist.
“Generally speaking, we are still optimistic over the longer term and believe we’re in a mid-cycle pause rather than heading back into recession,” he said. “However, we expect to see the market fluctuating between inflation and deflation fears for some time, meaning the bear market and the current volatility are likely to persist.”
He said before investors were ready to add risk, they needed to see policy on a global scale being coordinated in a “more sensible manner”.
“The fact that the European Central Bank is still talking about rate rises in a falling growth environment is adding to concerns over policy, and the lack of clarity is keeping investors on the sidelines,” Sheikh said. “We believe the sovereign debt crisis has scope to worsen. The crisis is currently accelerating more quickly than politicians are able to respond, so we’re keeping a close eye on spreads of French over German bonds. If they widen significantly, investors may begin to question the solvency of the European Union.”
