Commentator – Trent Loi, Portfolio Manager
Q1: What’s driving the recent market volatility?
The positive investor sentiment was spooked by hawkish comments made by the Fed Chair Jerome Powell on interest rate in US, lack of progress in trade talks between China and US, and concerns of a slowdown in global growth. Investor sentiment soured and resulted in a rush to exit equities positions. The sell down in equities was broad based in Q4 2018, however, the market was probably oversold hence a rebound in early 2019.
Q2: How long do you think it will continue? Why?
The 2019 earnings growth forecasts were revised down in both developed markets and emerging markets. The lower earnings growth numbers could still be too high therefore investors may potentially be overly optimistic on the outlook. A mismatch between expectation and reality may cause volatility to continue in 2019, especially if we are at the late stage of the economic cycle.
Q3: Is volatility – especially if it is sustained – better for active management strategies rather than passive? Why
A passive strategy does well in positive-trending markets as all boats rise with the tide. A volatile market environment typically represents good opportunities to differentiate high-quality companies and average companies. Active strategies that can identify these quality companies trading at reasonable valuation will be rewarded.
Q4: How does your investment process define and manage volatility?
The change in volatility regime is almost impossible to predict. We prefer to construct a well-diversified multi-manager portfolio with a balanced exposure to various investment styles to deliver consistent outperformance through the market cycle. We are aware of investors’ preference for capital preservation therefore we appoint underlying investment strategies that can do well when the market is down sharply.