The Quiet Investor – How to tune out market noise

Article written by InvestNow

According the NZ Film Commission synopsis, the first half of the classic 1985 local movie ‘The Quiet Earth’ “explores Zac’s solitude and the way it drives him slowly mad – he winds up in a pink petticoat running around a football field”.

Just one week into lockdown we aren’t quite there yet but Zac, played by the legendary Kiwi actor Bruno Lawrence, makes an emergency call that could serve as an answer phone message for the COVID-19 era.

“If there is anybody out there at all could you please contact me at home.”

In fact, history is repeating in other ways. The Quiet Earth footage of empty central Auckland streets mirrors the same scene today. Look out your windows kids, that’s exactly what NZ cities were like post 6pm any day in 1985.

But if daily life has been muffled, investment markets are noisier than ever.

Since the coronavirus crisis stepped up to global pandemic levels in March, volatility – the main measure of market angst – hit record highs in shares while also spiking up in fixed income.

So is it time to put on the pink petticoats and run screaming for the hills (and back again)?

Extremely loud and incredibly close

US share indices recorded the largest daily swings in history this March with the Dow Jones – the most-cited benchmark – falling almost 13 per cent one day and bouncing back by almost the same proportion the next.

“As ridiculous as it sounds, the Dow Jones Industrial Average just climbed out of the bear market it entered two weeks ago,” Bloomberg reported late in the month.

However, the share market mood remains deeply unsettled as revealed in the most common volatility metric: the VIX. In March the VIX hit an all-time peak, surpassing the previous high set during the GFC.

Robert Whaley, director of the Financial Markets Research Center at Vanderbilt University, recently told US press that the VIX (which he invented) “measures expectations of volatility 30 days out”.

“Right now, with the VIX near 70, the index is saying that the intraday swings on the S&P 500 will be 4% to 5% on a daily basis, which is an awful lot of volatility,” Whaley says.

The VIX fluctuates continuously but remains at elevated levels, hinting at more choppy markets ahead.

Whaley says: “The VIX is just an estimate of future volatility, so traders look at the actual volatility that is through the roof and they are naturally assuming some of this volatility will continue.”

NZ share indices have not been quite as volatile as the US but the local benchmark is currently down 20 per cent from its February apex after bouncing out of a trough 30 per cent below the high watermark.

Heard behaviour

Anecdotal evidence from KiwiSaver providers suggests many members panicked in the March madness by switching from high-risk funds to conservative or cash options.

Unfortunately, the ‘flight to safety’ will likely lock-in substantial longer-term portfolio losses for those who bailed out.

And at the same time a smaller number of contrarian KiwiSaver members are reportedly moving up the risk scale in an attempt to buy at the bottom or time the upswing.

KiwiSaver, and unlisted funds in general, though, are poor market-timing vehicles – even if investors made the perfect call.

Unlisted funds, which represent the majority of products on InvestNow, and KiwiSaver providers can take three days or more to execute buy or sell orders – leaving investors subject market whims in the interim.

In highly-volatile times, such as now, the fund price on execution could be substantially different (in either direction) from the day investors placed the order.

Exchange-traded funds (ETFs), like Smartshares, do offer price certainty and immediate transaction but they are not exempt from volatility. ETFs, which are meant to closely track indices, can deviate more widely from underlying net asset values (NAVs) as market oscillations increase.

Sound investing

Yet despite the intense market volatility, most InvestNow members have avoided the herd-selling trend, according to the platform’s general manager, Mike Heath.

Heath says while the proportion of sell orders compared to total rose slightly in March (34 per cent against 22 per cent in January), total transactions fell slightly over the same period.

“The figures suggest customers have chosen to sit tight and ride out the volatility – as they said they would when we surveyed them last year,” he says. “During March the only drop in funds under management has come through market movements, not investor withdrawals.”

Furthermore, Heath says the data indicates InvestNow members haven’t been selling equity funds to buy fixed income products.

“However, new money coming into the platform is flowing predominantly into cash, term deposit and fixed interest assets – again showing our investors are carefully evaluating options rather than panicking.”

At the margins, Heath says some InvestNow members are dipping back into share funds with a slight bias to active managers.

“Passive funds would see the same gains should markets bounce back but perhaps investors expect actively-managed funds to catch the uplift sooner,” he says.

The volatility, though, has not slowed down the growth of InvestNow: March has seen record sign-ups with the platform on track to add 2,000 plus investors over the month.

Markets will continue to gyrate in line with the unfolding COVID-19 drama: the end may not be in sight yet, but it will end.

Uncharacteristically for a NZ movie of the time, even The Quiet Earth closes on an upbeat note.

“Once other people show up,” NZ Film says, “… they try to overcome their differences to work together.”

The Quiet Investor – How to tune out market noise

Article written by InvestNow

According the NZ Film Commission synopsis, the first half of the classic 1985 local movie ‘The Quiet Earth’ “explores Zac’s solitude and the way it drives him slowly mad – he winds up in a pink petticoat running around a football field”.

Just one week into lockdown we aren’t quite there yet but Zac, played by the legendary Kiwi actor Bruno Lawrence, makes an emergency call that could serve as an answer phone message for the COVID-19 era.

“If there is anybody out there at all could you please contact me at home.”

In fact, history is repeating in other ways. The Quiet Earth footage of empty central Auckland streets mirrors the same scene today. Look out your windows kids, that’s exactly what NZ cities were like post 6pm any day in 1985.

But if daily life has been muffled, investment markets are noisier than ever.

Since the coronavirus crisis stepped up to global pandemic levels in March, volatility – the main measure of market angst – hit record highs in shares while also spiking up in fixed income.

So is it time to put on the pink petticoats and run screaming for the hills (and back again)?

Extremely loud and incredibly close

US share indices recorded the largest daily swings in history this March with the Dow Jones – the most-cited benchmark – falling almost 13 per cent one day and bouncing back by almost the same proportion the next.

“As ridiculous as it sounds, the Dow Jones Industrial Average just climbed out of the bear market it entered two weeks ago,” Bloomberg reported late in the month.

However, the share market mood remains deeply unsettled as revealed in the most common volatility metric: the VIX. In March the VIX hit an all-time peak, surpassing the previous high set during the GFC.

Robert Whaley, director of the Financial Markets Research Center at Vanderbilt University, recently told US press that the VIX (which he invented) “measures expectations of volatility 30 days out”.

“Right now, with the VIX near 70, the index is saying that the intraday swings on the S&P 500 will be 4% to 5% on a daily basis, which is an awful lot of volatility,” Whaley says.

The VIX fluctuates continuously but remains at elevated levels, hinting at more choppy markets ahead.

Whaley says: “The VIX is just an estimate of future volatility, so traders look at the actual volatility that is through the roof and they are naturally assuming some of this volatility will continue.”

NZ share indices have not been quite as volatile as the US but the local benchmark is currently down 20 per cent from its February apex after bouncing out of a trough 30 per cent below the high watermark.

Heard behaviour

Anecdotal evidence from KiwiSaver providers suggests many members panicked in the March madness by switching from high-risk funds to conservative or cash options.

Unfortunately, the ‘flight to safety’ will likely lock-in substantial longer-term portfolio losses for those who bailed out.

And at the same time a smaller number of contrarian KiwiSaver members are reportedly moving up the risk scale in an attempt to buy at the bottom or time the upswing.

KiwiSaver, and unlisted funds in general, though, are poor market-timing vehicles – even if investors made the perfect call.

Unlisted funds, which represent the majority of products on InvestNow, and KiwiSaver providers can take three days or more to execute buy or sell orders – leaving investors subject market whims in the interim.

In highly-volatile times, such as now, the fund price on execution could be substantially different (in either direction) from the day investors placed the order.

Exchange-traded funds (ETFs), like Smartshares, do offer price certainty and immediate transaction but they are not exempt from volatility. ETFs, which are meant to closely track indices, can deviate more widely from underlying net asset values (NAVs) as market oscillations increase.

Sound investing

Yet despite the intense market volatility, most InvestNow members have avoided the herd-selling trend, according to the platform’s general manager, Mike Heath.

Heath says while the proportion of sell orders compared to total rose slightly in March (34 per cent against 22 per cent in January), total transactions fell slightly over the same period.

“The figures suggest customers have chosen to sit tight and ride out the volatility – as they said they would when we surveyed them last year,” he says. “During March the only drop in funds under management has come through market movements, not investor withdrawals.”

Furthermore, Heath says the data indicates InvestNow members haven’t been selling equity funds to buy fixed income products.

“However, new money coming into the platform is flowing predominantly into cash, term deposit and fixed interest assets – again showing our investors are carefully evaluating options rather than panicking.”

At the margins, Heath says some InvestNow members are dipping back into share funds with a slight bias to active managers.

“Passive funds would see the same gains should markets bounce back but perhaps investors expect actively-managed funds to catch the uplift sooner,” he says.

The volatility, though, has not slowed down the growth of InvestNow: March has seen record sign-ups with the platform on track to add 2,000 plus investors over the month.

Markets will continue to gyrate in line with the unfolding COVID-19 drama: the end may not be in sight yet, but it will end.

Uncharacteristically for a NZ movie of the time, even The Quiet Earth closes on an upbeat note.

“Once other people show up,” NZ Film says, “… they try to overcome their differences to work together.”

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