Hold your nerve, Muzinich manager tells investors

Tatjana Greil Castro, a high yield portfolio manager for leading corporate credit specialist Muzinich & Co, says investor judgement is being clouded by bouts of negative short-term news.

Investors have become unwilling to stomach even small short-term losses, she said. “The focus on capital preservation has gone too far and will ultimately result in lacklustre returns over the medium to long-term high yield fundamentals remain strong and double digit returns expected in 2012.”

“There is continuing concern about what’s going on in Europe – and globally, but it’s becoming a little bit ridiculous. There is so much focus on volatility and people wanting to preserve their capital in the short-term that investment opportunities are being lost or ignored.

“Investors talk about having two or three year investment time horizons but increasingly we have seen everyone focus on the latest news event and investment behaviour is being shaped by this, rather than fundamentals.

“But whether it’s the French elections or the Netherlands budget, or whatever comes next, markets and investors have lost their sense of perspective. They have become so risk averse that they are ultimately losing out. 

“In fixed income, for instance, everyone is huddling around the same names. That way, if there is a short-lived downdraft, they will better preserve capital, even if we are only talking about a few basis points at stake, and perform similarly to their peers. But if they were to look to the medium-term they could achieve much better returns.

“Why hold a two-year German Bund yielding 12 basis points when you can own a two-year Italian government bond yielding 3.3%? Is Italy really going to default within the next two years?    

“People are forgoing investment return for short-term capital preservation. It is short-sighted and not in investors’ interests. Professional investors seem to be scared of having to go out to clients and say ‘you were down over the past couple of months’. But the time horizon should be much longer than that. Being down a few basis points over a month should not matter if you are up several per cent over a year. Unfortunately, many investors seem to have forgotten this.”

Close Window
View the Magazine

You need to fill all required fields!