PA ANALYSIS: Coming volatility demands clever boxing not capitulation

Added 19th May 2016

When they have been knocked to the mat, boxers have been known to use as much of the count as possible to regather their wits before wading back into the fray.

PA ANALYSIS: Coming volatility demands clever boxing not capitulation

And, having spoken to a number of wealth managers in the past few weeks, I can’t shake the feeling that the moves seen so far in the second quarter have something in common with those of such a prone boxer.

The volatility seen in January and February caught a lot of investors off guard – especially the sharp rotation back into value stocks. As a result, a lot of managers have taken risk off the table, increasing cash weightings and moving back into other safe havens.

But, while the volatility has diminished somewhat since March, the defensive stance has remained, as has the lack of enthusiasm for the recovery in that part of the market. As one wealth manager said recently: “It is hard to get enthusiastic about a recovery that you haven’t participated in.”

All of which is completely understandable, especially given the amount of noise now in the system from the likes of Brexit and the US election.

Indeed, Hargreaves Lansdown said in a trading update on Thursday that 25% of investors cited current uncertainty over EU membership as the reason behind their reducing their propensity to invest.

"There is a fine line between being gun shy and waiting patiently for a tactical opportunity."

But, within this general malaise, lurks the danger of inertia

My colleague Alex Sebastian has already pointed out the possible contrarian opportunity being presented by this stance with regards to UK equities. But, a broader point is worth making. There is a fine line between being gun shy and waiting patiently for a tactical opportunity – especially in a world of low growth and already inflated asset prices.

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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