Asset allocators and managers remain fearful over increasing equity exposure despite significant market falls creating a potential buying opportunity.
Markets have headed south in early 2016. A plunging oil price and concerns over China’s attempt to manage the weakening of the renminbi have led to the worst start of the year for equities in decades.
Equity investors witnessed precipitous falls in Asia and emerging markets, with developed world stocks following suit.
But these year-to-date market plunges – 8.5 per cent in the S&P 500 and 7 per cent in the FTSE 100 as of last week – have not prompted the usual response among managers and selectors.
Ryan Hughes, fund manager for Apollo Multi Asset Management, is maintaining a defensive stance for the first quarter with a relatively low equity weighting of 35 per cent and cash at 10 per cent. His only recent additions have been in the absolute return space.
The manager explained: “I haven’t been buying the dips yet – I think we have got a quarter of volatility to come. In buying the equity dips you think you have found a floor and then you find the market falls by 4 or 5 per cent.
“Before I buy the dips, investors need to get a bit of confidence. If you can see a bit of stability, maybe in the oil price and the currency markets, I would be happy to get a bit more equity exposure.”
Even with others making marginal moves, the general mood among selectors and managers is one of hesitancy.
Psigma Investment Management’s Tom Becket said Asian prices in particular could herald a “significant buying opportunity”, but he has not yet made a concerted move.
Charles Hepworth, investment director at Gam, has “marginally” increased exposure to Europe and Japan, but no more.
“Most managers we speak to have said that cautiousness is creeping more into their thinking. From a contrarian perspective this would point to buying opportunities,” he added.
However, Mr Hepworth said he wanted to see signs of an improvement in global growth before making significant moves.
David Vickers, senior portfolio manager for Russell Investments, said he was less confident than after August’s ‘Black Monday’ – when Chinese stocks fell 8.5 per cent in a single day – as the recent turmoil had happened “against a background of expensive valuations and a slowing global business cycle”.
He said: “Momentum in equity markets was still positive in August, while it is neutral to negative today, depending on the region.”
However, Rathbones manager David Coombs has taken a more forthright approach.
“I know my view on the US is relatively non-consensual, but we see this as a buying opportunity. I still think the US economy is strong, and we like US large cap, moderate-growth stocks,” he said.
