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Market downturn – why we’re taking action now

30 October 2017

A market downturn is coming and that requires forward thinking, says Peter Elston, chief investment officer, Seneca Investment Managers.

There’s much talk about when the bull market in equities will end. We believe it will be around 2019, ahead of an economic downturn in 2020, but it’s vital to take action well in advance.

Many investors are holding off from reducing risk, presumably waiting until the bull market has ended, but we don’t think that’s the right approach. To be protected when the markets turn, you need to taper your risk ahead of that change.

This month we further reduced our equity holdings across all of our funds. With a global economic downturn expected in 2020, a bear market will set in ahead of this. We have created a framework to reduce our risk exposure gradually over time to avoid the need for drastic asset allocation changes once the market does turn.

Our time frame is a very broad estimate and it’s likely that the market changes won’t occur when we expect them to. This is why we are taking action early: we feel in this situation it’s the ‘what’ that matters, not the ‘when’.

We’re now in a period of monetary tightening across the developed world, which could mean interest rate increases, tapering of asset purchases or balance sheet shrinkage. The US is ahead of other markets in this cycle, however the UK, Eurozone and Japan are not too far behind. Given where markets are in the cycle, equity returns should remain positive but are falling.

The proceeds of our reduction in equities went into a combination of specialist assets and short duration high yield bonds, which we believe are attractive for the inflation protection and yields they offer.

Equity allocations now stand at 38% for the Seneca Diversified Income Fund, 56% for Seneca Diversified Growth and 58% for the Seneca Global Income & Growth Trust.




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