Investment Intelligence

‘Business as Usual’ during these challenging times

Arvind Sabharwal, Director of Investments, explains why investors remain in safe hands with M&G.

Recent developments in Europe have understandably heightened nervousness amongst investors as the inevitability of a full-blown recession in the region became apparent. Both business and consumer confidence have fallen and the risks of a euro break-up have intensified. This has resulted in increased levels of volatility (rapid, unpredictable changes in asset prices) with indiscriminate declines across the market and limited attention paid to the health and prospects of individual companies.

From a global perspective, while it is certainly true that Europe is suffering, it is important to remember that there is significant growth in China, wider Asia and emerging markets in general. These regions are not without their challenges, but they continue to grow at a strong rate, albeit at lower levels when compared with previous years, and have withstood the various economic and political shocks during 2011 that may have derailed weaker economies.

In these uncertain times, at M&G we remain focused on our strategy of maintaining active, consistent, long-term investments and are not reacting to short-term market ‘noise’. We do not impose a ‘house view’ on our managers as we value independent thinking. Our fund managers continue to develop their own individual investment strategies and act on their convictions. They operate within a supportive structure of research, portfolio construction and risk-reducing processes, a tried and tested strategy that has seen us through more than 80 years in the industry and made us one of the leading active investment management companies in the UK and Europe.

Moreover, the current market environment offers significant opportunities to buy good value companies with strong management teams at low prices, and a number of our funds have been able to buy new holdings or add to existing holdings. Opportunities are presented in all market conditions and it is our managers’ job to seek them out. Even so, as the following chart illustrates, periods of market ‘panic’ tend to be short-lived.

Global Risk Appetite Index, Credit Suisse

The index compares risk-adjusted returns across a wide spectrum of global assets.  During periods of high investor risk appetite, ‘risky’ assets such as developed equities and emerging markets typically have very high returns, while ‘safe’ assets, such as G3 bonds (issued in US$, yen and euro) and government bonds tend to have low or negative returns.  The opposite is true during periods of low investor risk appetite when risky assets suffer the most while G3 and government bonds tend to strongly outperform.  64 global assets are used in the global risk appetite calculation.  They include almost all developed equity and government bond markets, as well as the more important emerging assets.

 

We understand that current market conditions are prompting many nervous investors to withdraw their investments in the hope of re-entering the market at a calmer point. We would caution against this; such moves are difficult to time and can result in losses and/or lead to investors missing out on significant gains. Our funds are focused on their long-term investment goals and while no fund is immune from short-term performance challenges, over time, these anomalies can be overcome.

Therefore, we can reassure you that our strategy at M&G remains unchanged: Aiming to deliver superior investment performance and maximise risk-adjusted returns in a variety of macroeconomic environments by maintaining a long-term, low stock/portfolio turnover approach.

In other words, it is ‘Business as Usual.’

Please remember that the views expressed in this article should not be taken as a recommendation, advice or forecast.  We are unable to give financial advice and if you are unsure about the suitability of your investment, speak to a financial adviser. With all stockmarket investments, past performance is not a guide to future performance, prices and the level of income may fluctuate and you may not get back your original investment.