When all around are losing their heads...
Last week was eventful for global investment markets as Italian politics became the focus of all asset classes and caused sell-offs across the board.
While the events in Italy created legitimate concerns over Eurozone stability, most people can agree the extent of the global market reaction was more to do with where we are in the post-crash bull market cycle and how jittery the markets are considering the historic low levels of volatility we have experienced in the last few years.
One of the more remarkable results of the uncertainty that kicked in last week was the broad scope of the sell-off. Take US banks for example – they are operating in a rising interest rate environment where banks are starting to consider the ability to finally generate more normalised levels of profit so why should their share prices fall off so steeply on the back of political instability in Italy, and long-term Eurozone uncertainty, two issues that can hardly be described as new! Shares of J.P. Morgan Chase, Bank of America, Morgan Stanley and Citigroup all fell 4 percent or more last Tuesday. Markets are complicated of course and there were links to contagion fears and perhaps a more dovish Federal Reserve as a result of global economic uncertainty, but regardless this was a significant sell off for a sector with little exposure to Italy and of course represented a nice buying opportunity for quick traders.
With the presence of this kind of sensitivity to market events what most investors want from their portfolio, fund or fund manager is a calm and less reactive approach to the world. Easier said than done of course!
One fund and fund management team that has consistently navigated choppier waters is the Old Mutual Global Equity Absolute Return (‘GEAR’) Fund. In this slide deck you can see how the Fund has performed across the most volatile periods in markets since the crash. In each of the four periods covered, Global Equities (illustrated by the MSCI World Equity Index) and European equities (illustrated by the Eurostoxx 50 Index) suffered negative returns whereas the GEAR Fund posted positive returns across all periods. The Fund is focused on positive returns and lack of correlation to equity markets. Since its launch the Fund has averaged a near zero correlation to global equities meaning that statistically it bears basically no resemblance to how equities do or don’t perform – the true definition of being diversified.
Please click here to view the slide deck.
The Old Mutual GEAR Fund is the underlying Fund behind the BCP Global Equity Absolute Return Bond 9 which is open for investment and closes on June 27th. For more information please see www.bcp.ie and contact your financial adviser.