Bull has not run out of steam
14 March 2018
Bull markets are not running out of steam but returning to normality, according to Seven Investment Management.
In just over two months, the S&P 500 has moved by more than 1% on more than 10 days, compared to just eight days for the whole of 2017, stoking fears that the bull run has come to an end.
However, Ben Kumar, Investment Manager at 7IM (pictured), said the volatility seen so far this year is a “normal state of affairs.”
He explained: “We’ve simply been lulled into a false sense of security by very recent history and completely forgotten that this is how markets usually behave. Overreacting would be akin to having a couple of hot weeks in September, and deciding that you will never need central heating again. Even just going back to 2016, what is currently happening was reasonably ‘normal’ – markets moved by 1% or more nearly 50 times, rather than the eight days for the whole of 2017.
“Bull markets do not simply run out of steam – they need a catalyst, yet global growth looks set to continue.”
To mitigate any bumps caused by the volatility, Kumar said the 7IM has slightly lower than average equity holdings, cash allocations, and investments in other defensive measures.
Damian Barry, senior investment manager, 7IM, said: “We are at a challenging time for the US Fed as it transitions from quantitative easing to quantitative tightening. This has already contributed to a noticeable rise in market volatility. But from an investment perspective, volatility in markets tends to be a random force and it doesn’t take the time to discriminate between good or bad companies. For skilled active managers, this provides them with an opportunity to take advantage of the volatility and reposition their portfolio using their best ideas.
“On balance, higher volatility may create an opportunity for active managers. It is not inconceivable to think that some of the headwinds for active management might abate if market volatility increases. Last year we have seen markets dominated by momentum and less influenced by company fundamentals.”
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