‘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
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
L1 Capital, which is in talks to merge with Platinum Asset Management, has indicated it will be voting against a deal to convert a Platinum LIC into an ETF.
Evidentia Group has hired a head of quantitative investments who joins the investment firm and managed account provider from AMP.
Fidelity International has worked in tandem with Australian wealth manager Emanuel Whybourne & Loehr to launch an actively managed global equities strategy aimed at financial advisers.
