Managers say volatility equals opportunities, but admit they cannot exploit them

The financial industry overwhelmingly believes volatility in markets presents a ‘great opportunity’ for active fund managers. But only one in 10 practitioners believes those managers are equipped to transform volatility into healthy net returns for clients.

These are two key findings of research from consultants Create and Principal Global Investors.

When placed together with a recent survey from Natixis – that found 78% of German and Swiss institutional investors expect volatility to be ‘the new norm’ – it seems managers will be faced with opportunities, but at the same time lack the skills to exploit them.

In Natixis’s global institutional management survey, also released this week, 87% of Swiss and German investors said volatility “provides investment opportunities”.

Create’s global research seemed to agree – 71% of respondents said high volatility offers a “great opportunity to active managers”.

This is a relief, because there have been six times more intra-day price fluctuations, of at least 4%, since 2008 than there were since 1968.

It is also a relief because two thirds of respondents expect at least two more systemic crises before 2020.

Create notes: “None of the survey respondents expect the return to the golden age of high growth/low inflation that prevailed in the period 1982-2007. This scenario is predicated on an economic take-off in the US, a safe economic landing in China, a viable accord on the debt crisis in Europe and stable oil prices. Currently, there are no early signs that any of these conditions will prevail in the near future.”

When asked, will active managers will be able transform volatility into good net returns, though, 20% of respondents to Create answered ‘no’. This is twice as many as the proportion (13%) who answered ‘yes’, and most (54%) only said ‘possibly’.

Interestingly, 35% of respondents to Create’s research seemed to suggest they did not have the right staff, or enough of the right staff, to make good use of market volatility. They would “hire or develop leaders who can embrace volatility,” Create forecasts.


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