No one can say they did not see it coming. With the consensus since late last year that 2015 would see greater market volatility to come, the worries over China that brought global equities to their knees in late August were in many ways inevitable.
Investors have long had a case of the jitters, even if over 12 months the MSCI World has (just about) delivered growth.
Portfolio Adviser has asked many times where the real safe havens are to protect clients from further downturns, but it is clear the goalposts have moved.
Our expectations continue to adapt as the Fed and other central banks contemplate a period of monetary tightening, and so too has the available product mix.
Asks Andrew Summers, head of collectives at Investec Wealth & Investment: “In an environment where you are worried that equities might fall, but you really don’t want to own lots of government bonds because they don’t look particularly good value, where do you go?
“Cash does not offer investors any return, while gold has become a very unpredictable source of volatility dampening for investors.”
Summers stresses he always encourages clients to have some duration in their portfolios, accessed via direct gilts and gilt tracker funds, as well as actively managed government bond funds.
Ultimate insurance
“As much as investors may hate owning gilts, because they do not think they will make any more from them, we always remind investors that they are an insurance policy.
“You are not supposed to make money out of them, but you will be glad to have them if there is a terrible situation in equities,” he adds.
“We hope that does not happen, and we don’t think it will, but it is always good to have them there.”
Still, the most obvious solution for Summers, and indeed for many in the wealth management community, is to overweight absolute return/uncorrelated investment strategies.
These include established multifaceted names such as Aviva Investors Multi-Strategy Fund (AIMS) and Standard Life Global Focused Strategies, which exhibits higher overall volatility but less equity volatility than the renowned GARS fund.
In the closed-ended space, Investec also uses Brevan Howard Macro for relative value interest rate trades. While this trust carries some equity correlation with its share price, it has a strong discount control mechanism in place.
Other well-known, multibillion pound funds favoured by Investec and others include Newton Real Return, Ruffer Total Return and Troy Trojan. Laith Khalaf, senior analyst at Hargreaves Lansdown, suggests while they do not guarantee capital protection, they do at least focus on it.
