Navigating the choppy waters of global investment volatility
By Bruce Madden.
With volatile conditions buffeting global investment markets over the past six to 12 months, many Fitzpatricks clients headed for the relative calm of a sit down client seminar during March to hear from our Senior Portfolio Manager, Tony Edwards.
Tony unpacked the underlying statistical trends to paint a data rich picture of continuing uncertainty surrounding global markets, and mixed performance results emerging across a number of global and domestic asset classes.
Fears of a consumption slow-down in China, amid worries over the extent to which the United States’ economic recovery will hasten, have contributed to a ‘very volatile start’ to the first quarter of 2016, Tony said.
“The primary fear driving this volatility is really the concern over the rate of global growth, with China coming off the boil and the US looking to reverse its downward cycle of interest rate cuts for the first time in seven years,” he said.
“The main message for our investors was really that, yes we see heightened levels of market volatility, but we can also identify the specific risks and importantly manage those risks in our portfolios through prudent use of diversification and selective investment in quality assets”.
Navigating market volatility, Tony said, was a case of understanding that the world remains in a low growth phase where the risk to earnings remains ‘more to the downside’.
“In other words, we believe it is vital that investors hold a strongly diversified portfolio of quality assets that is not concentrated towards any single risk exposure.
“Secondly, as we do, investors must actively manage those assets to ensure relative value is maintained. If we do not see any investment that stands up to the quality and value test then we are more than happy to sit on the sidelines in cash, waiting for those attributes as patient investors,” he said.
So is the diversified approach to risk and active approach to managing investments working?
The Balanced fund option is holding up well, delivering 10.7 per cent per annum* returns over the three years to January 31, 2016. This is against the average balanced competitor of 6.1 per cent gains, and the benchmark S&P ASX 200 delivering 5.4 per cent returns.
*Past performance is not a reliable indicator of future performance.