Asset allocators have begun to tip-toe back into risk assets to snap up cheap deals, but nerves over continued volatility means they have refrained from more significant moves.
China’s 8.5 per cent ‘Black Monday’ fall sent global indices plummeting this week, following on from several days of smaller drops for developed markets.
The likes of the FTSE 100 and S&P 500 remain in correction territory, with a rebound seen in early trading on Tuesday already starting to evaporate.
Notably, though the S&P 500 opened 2 per cent higher yesterday, the index closed the day down 1.4 per cent, suggesting continued uncertainty among investors.
Ian Kernohan, senior economist on the Royal London Asset Management multi-asset team, said a sentiment indicator used by the team has dropped to its lowest level since 2011 - indicating a strong buy signal for equities. But others are more cautious.
Ryan Hughes, fund manager at Apollo Multi-Asset Management, does not think investors should get overly excited. He said: “It’s very easy in markets like this to chase what’s going on, but then you end up getting whipsawed. It’s dangerous to try and trade through the volatility.”
David Vickers, senior portfolio manager for the Russell Investments Multi-Asset Growth Strategy, agreed with his peers. He said: “Normally we are of the mentality to buy the dips, but we have moderated that a bit.”
However, Mr Vickers has sold protection from his portfolio, disposing of an S&P put which protects against a 10 per cent downturn in the market.
Others such as BMO Global Asset Management multi-managers Gary Potter and Rob Burdett, have also chosen to hold tight and not spend their cash weighting.
Mr Potter and Mr Burdett noted the movements in the markets have created opportunities for investors, but said: “for the moment we are staying patient and not significantly adding to positions”.
“Our portfolios are broadly neutral versus benchmarks with respect to equities and investor risk appetite is likely to take some time to recover”.
By contrast, David Jane, multi-asset manager at Miton, has moved more forcefully. Mr Jane added 3 per cent to his overall equity allocation by Tuesday afternoon. He bought US, UK and European equities, favouring pharmaceuticals and consumer stocks.
