‘Alert not alarm’: Lonsec warns on timing the market
Lonsec chief investment officer, Nathan Lim, has reminded advisers and clients that attempting to time the market to combat volatility this week could be costly to portfolios.
In an update note from the research house, Lim referenced the volatility in markets this week which caused a market sell-off. This was caused by a variety of factors including the Bank of Japan increasing interest rates, negative results from the Magnificent Seven technology stocks, and the US political uncertainty.
As a result, markets plunged with the ASX 200 down 5 per cent, the S&P 500 down by 3 per cent, and Japan’s TOPIX seeing its largest one-day drop in more than 30 years. It also led the VIX volatility index to reach levels unseen since the COVID-19 pandemic.
Lim said: “Macroeconomic and geopolitical news is mixed but not alarming.
“Lonsec’s dynamic asset allocation dashboard recognises pockets of economic weakness, but indicators are only at ‘alert’ levels, not ‘alarming’ levels. Equity market valuations are also mostly back to ‘fair value’ following recent selling – not an outright buy signal, but just a recognition that market valuations had become extended.
“While we are not prepared to signal the ‘all clear’, the current volatility seems to be sentiment/technically driven rather than a marked deterioration of economic fundamentals.”
Lim joined Lonsec last year from Morgan Stanley, replacing Lukasz de Pourbaix who moved to join Fidelity.
He recommended investors and advisers rely on a well-diversified portfolio of assets and focus on long-term goals. This would likely serve them better than hastily switching assets in cash.
“Trying to time the market by moving to cash can be costly. Too often, investors move into cash, hoping to avoid a sell-off, only to miss the rebound,” Lim said.
“Investors should always focus on their long-term financial objectives, especially during periods of financial anxiety.”
Guy Stear, head of developed markets strategy at Amundi Investment Institute, added: “A spike in volatility may warrant reducing risk exposure as a precaution, but the moves could create opportunities in developed markets, especially in equities.
“Government bonds appear less attractive after recent moves, while the outlook for corporate bonds is mixed, with investment grade credit preferred to the high-yield segment.”
AUTHOR
Laura Dew
Recommended for you
Research by Morningstar has found fixed income funds are bucking a general trend around managed fund fee dispersion with a smaller fee dispersion compared to equity ones.
As investors seek to diversify their portfolios, the naming of bond labels has broadened out to include green, social and impact bonds, according to the annual RIAA report.
Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million.
Metrics Credit Partners is expanding its private credit fund range with a managed fund for retail investors following investor demand.
