During times of such unprecedented uncertainty, investors may be asking what active investment management means and what are investment managers doing to manage the impact investment markets are having on portfolio values.
In times of heightened, if not unprecedented, levels of uncertainty everybody has a significant urge to ‘do something’ – it is human nature to want to fix something if it goes ‘wrong’.
The toilet paper and now general panic buying, against best advice from the government and the supply chain managers, are testimony to this very human notion.
Investment managers face the same pressure when markets and asset classes embark on a wild yo-yo-like pattern of daily movements. However, even if it runs against the human desire to intervene, ‘doing nothing’ is widely accepted as the best approach to:
a) preserve the volatility reducing characteristics of diversified portfolios vs. direct stock holdings and
b) to have portfolios in a position to act at the point when the wild market swings calm and the biggest buying opportunities arise.
This does not mean that investment managers sit idle. Every day they review the relative weightings across portfolios and reflect against the market developments whether the portfolios’ individual component parts have drifted to a positioning – driven by differing asset class returns – that are deemed adequate and appropriate.
We would expect the active managers to be taking advantage of the recent volatility in markets, whilst remaining committed to the philosophies they have in place.
Trying to ‘time-the-market’ and trade on short term swings is the reserve of the very highest risk seekers amongst investors. Those with a capacity for risk to lose significant amounts of their capital or miss any short-sharp recoveries that long-term investors will capture when they misjudge the sudden turns of disorderly markets and guess wrong.
We firmly believe that ‘time in the markets’ will once again prevail, just as it has done during all previous ‘apocalyptic’ looking global crises.