Focus on investments stability misplaced
Investment returns have become centred around the provision of stability and the avoidance of volatility instead of the valuation of the investments leading to the acceptance of lower returns.
Ariel Investments, Chief Investment Officer, International and Global Equities, Rupal J. Bhansali said the focus on stability had led to investors accepting the "certainty of low returns for the hope of low risk" and called for a break with current thinking.
Bhansali said investors should apply a contrarian view and that "stability is not always your friend, and volatility is not always your enemy".
According to Bhansali investors should buy into securities when they go on sale, purchasing quality companies trading at a discount due to concerns about volatility, but should avoid those "on clearance".
"Conversely, investors should avoid buying stocks selling at a high premium for their perceived stability," Bhansali said, stating investors should focus on how a security is valued instead of perceptions of stability and volatility.
"Many investors think stability is equated with reducing risk, but in reality, they may have merely swapped risk, not reduced it," she said.
"Overpaying for stability can result in underperformance or losses. On the other hand, going long on volatility at a discount can work in your favour in generating returns."
Ariel Investments is a US based equities firm and has recently opened its first Australian office targeting institutional and private wealth high net worth clients.
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