While 2017 saw relatively low volatility in global equity markets, 2018 has to date painted a different picture.<\/p>\n
The increased volatility can be attributed to concerns over global growth, fears around the withdrawal of liquidity that has been in abundance over the last decade and less attractive valuations given the bull market observed over the last 9 years.<\/p>\n
This is according to Graham Tucker, manager of the Old Mutual Balanced Fund, who believes that while market volatility manifests itself in lower returns over the short term, it creates a better point of entry to the market for long-term investors.<\/p>\n
\u201cVolatility is often seen as a risk by investors, but it actually presents opportunities,\u201d said Tucker.<\/p>\n
\u201cPeriods of volatility allow for improved entry points into the market, presenting the opportunity to buy assets that you need over the long-term, at better prices.\u201d<\/p>\n
Tucker warned that investors don\u2019t want to be panicking in turbulent times, when instead they could be using volatility to their advantage.<\/p>\n
\u201cIf you panicked out of the market in February or March of 2009, while equities were coming off quite sharply, you would have missed out on one of the best bull markets of our time. The key during that period was to keep a cool head, avoid panicking as a result of extreme volatility and increase your investment savings, in other words go on the offensive, not the defensive.\u201d<\/p>\n
Where to invest?<\/strong><\/p>\n Considering the current volatility seen in South Africa and globally,\u00a0\u00a0Tucker highlighted a number of opportunities investors may consider looking at.<\/p>\n \u201cIn our view the outlook for the global economies remains strong,” he said.<\/p>\n “We are moving later in the investment cycle and central bankers are raising interest rates, but they remain exceptionally low by historic standard and when looking at real rates. We view these rate hikes as ‘good news’ hikes in that the economic recovery is robust enough to allow for interest rate normalisation.\u201d<\/p>\n \u201cWe\u2019re looking for opportunities to increase our exposure to equities during this period of volatility,\u201d said Tucker.<\/p>\n \u201cHistory clearly illustrates that, over the long term, investors require growth assets in their solution. Given our economic view, equities therefore remain a desirable investment.<\/p>\n In particular, Tucker said that they had turned their attention towards the local equity market.<\/p>\n “South Africa still faces many challenges. But, the market-friendly developments we\u2019ve seen of late, the vote of confidence given to us by Moody\u2019s and the rapid improvement in confidence augurs well for local assets, at least in the short to medium term. After years of constant negative revisions to South Africa\u2019s growth prospects, we believe we\u2019re now past the point of maximum pessimism,” he said.<\/p>\n However, Tucker believes that to some extent this more positive view is already reflected in asset prices.<\/p>\n \u201cFor example, the rand was simply too strong in the first quarter and some weakness was to be expected. Therefore, we are exploring opportunities that still offer a reasonable upside return for our clients from here.\u201d<\/p>\n This more positive stance on South African assets is not limited to equities.<\/p>\n \u201cThis is where a balanced fund is a great investment vehicle as it not only offers investors the opportunity to hunt far and wide, but also introduces greater diversification,\u201d he said<\/p>\n \u201cThis results in a smoother journey for an investor, according to Tucker.<\/p>\n \u201cNo single asset class constantly outperforms. Actively managed balanced funds provide exposure to a wider universe of assets to enhance the potential returns and allow the portfolio manager to adjust the portfolio timeously as and when required.\u201d<\/p>\n Tucker said that investors are prone to panic when it is darkest.<\/p>\n \u201cWhen investors panic, they shorten their time horizon significantly and this can have an extremely detrimental impact in the long term. Don\u2019t let volatility rule your emotions \u2013 volatility can work in your favour when playing the long game,” he said.<\/p>\n
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