PA ANALYSIS: Time for investors to run for the hills or be brave?

Added 18th January 2016

It has been quite a start to the year in financial markets and the initial impulse many will have is to batten down the hatches and try to weatherproof portfolios.

PA ANALYSIS: Time for investors to run for the hills or be brave?

In doing this though, investors could be missing a trick.

Given how few people can genuinely say they called the 2008 crash ahead of time, it seems financial markets oracles of various stripes are falling over each other to call the next major crash.

That does not necessarily mean such a crash will come this year or any time soon, at least not of the magnitude of the 2008 one. However like a stopped clock, if you have a proclivity for being a doom-monger you will eventually be right if you keep saying there is a collapse coming.

While we are waiting for this though, there could be serious money to be made in the meantime for investors not afraid of taking some risk on and riding out volatility.

One of the more interesting and illuminating charts during times of market turmoil is the VIX, and looking at it here we can see the ‘fear index’ has climbed steadily over the past couple of months, although it remains some way off the spike seen in late August.

"Given how few people can genuinely say they called the 2008 crash ahead of time, it seems financial markets oracles of various stripes are falling over each other to call the next major crash"

 

Kevin O’Nolan, manager of Fidelity’s multi asset funds, is one investor who rather than taking fright when the VIX heads up sees opportunity within the danger, and has been adding to equities allocations over the past two weeks after trimming down during the previous six months.

“We haven’t yet reached where got to in August but the VIX levels are starting to look like heading that way, and we are very much at panic levels,” O’Nolan said. “The data is looking equivalent to what we saw in the 2011 euro crisis. It is about understanding that those who are going to sell off have already done so, and secondly trying to capture the upside from when policy makers step in.”

O’Nolan also noted that credit spreads have been widening out and this correlates with volatility as shown below, which presents its own opportunities.

 

 

 

 

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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