PA ANALYSIS: Reasons to stay the course as volatility storm looms

Volatility expectations have been given a shot in the arm by August’s wild swings, but despite this many investors are determined to stay the course.

PA ANALYSIS: Reasons to stay the course as volatility storm looms

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Some commentators have even predicted future flash crashes as a result of reduced liquidity and strong central bank involvement in markets.

“Volatility tends to come in phases, and this is a clearly a phase that we must assume is going to continue,” said Andrew Wilson, Towry’s head of investment

“While investors might want to buy opportunities thrown up by the volatility, given that September and October is generally the weakest time of the year for markets, it is not really the time to be a hero in terms of putting on more risk assets.”

Like his counterpart, while Jason Stather-Lodge, OCM Wealth & Asset Management CEO, concedes that there is increased volatility afoot, he believes that rather than trying to anticipate the unpredictable, patience is the best policy.

He explained: “If markets were a dog and the economics in a region represent the person walking the dog, our primary focus has to be on the dog walker, not the dog.”

“As long as the ‘dog’s’ direction of travel is the right direction and the outlook is positive, we remain invested. We will watch the ‘dog’, and if it gets ahead of the ‘walker’ then we may shorten the lead and lock in profits or even lengthen the lead and speed up the pace by taking more risk. If the ‘dog’ falls behind then we look at the ‘walker’, and, as long as the outlook is positive, we will make small changes but remain invested and wait for the ‘dog’ to catch up.”

However, David Cavaye, CIO at C. Hoare & Co, sees it as a return to normality.

“Volatility has risen, but we have been through a period when equity volatility was low by historic standards and bond volatility has been unusually high,” he said.

“In that sense, it has been something of a return to normality, though we are going to see more return differentiation between markets.”

Having reduced his Asia weighting to half-benchmark in July, Cavaye is keen on the prospects for Europe and Japan, which he feels will be driven by their respective ongoing quantitative easing programmes.

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