Fund selector’s views: Volatility, gold and correlation
Six more fund selectors have given their views on issues such as volatility, gold and correlation between assets affecting their choices.
Name: José Galeano
Title: Head of alternative assets
Company: SYZ Asset Management
How do you see market volatility developing?
In a situation where our world hinges on government policy responses and especially their clarity and rapidity, investors are facing an environment that is very uneasy to forecast.
We believe that the volatility in the marketplace will continue to be high for a period of time due to the following three reasons.
The first is lingering macro uncertainties and the probability of systematic risk resulting from a worsening euro debt situation.
It is not our base scenario, but the probability of this outcome has grown due to delayed and inadequate policy responses.
The second is the increasing high-frequency trading activities leading to higher intra-day volatility.
The third is the risk-averse mentality of market participants, most of them still affected by their bad experience in 2008, causing them to apply tighter stop-losses.
Name: Andrew Harradine
Title: Head of long only research
How important is past performance?
The greatest pitfall in manager selection is chasing past performance. Its popularity as an approach is not surprising, given broad access to performance data and the tendency of fund houses to market funds with good three- and five-year track records.
Performance chasing is ineffective for a number of reasons. Many funds exhibit structural biases, such as growth or small cap, and as the payoffs associated with these are cyclical, so fund performance is cyclical.
Risk appetite can change, which impacts performance, and personnel or investment process can change, rendering earlier fund track records less relevant.
Looking at exactly how those managers generated returns, rather than just the returns, is vital.
Name: Kevin Gardiner
Title: Head of global investment strategy
Company: Barclays Wealth
Is gold still a safe haven?
Despite its traditional ‘go-to’ element in times of financial market panic, in the two weeks to 30 September market sentiment turned, causing the ten-day correlation between gold and equities to move from negative to positive.
Many market participants said gold will be like ‘going up on an escalator, then down in an elevator – looking at gold, it seems this saying was fulfilled.
Gold is not a one-way bet and, although increasing macroeconomic uncertainty has buoyed it to record highs, its volatility has significantly increased.
The lack of other ‘safe haven’ assets has, perversely, also contributed to this volatility – making gold a bit less safe and a bit more risky.
Further hikes in margin requirements could pose further downside risks to gold.
Furthermore, if the European peripheral crisis were to unexpectedly worsen significantly and quickly, gold prices may well suffer alongside all other risk assets as investors pile into cash.