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Market volatility presents ongoing opportunities

Volatility and widespread dispersion in asset class returns is creating opportunities for active managers.




We’re currently seeing volatility and widespread dispersion in asset class returns. Although such conditions are manifesting themselves in many investment opportunities, there are also potential land mines. As such, active diversification and rigorous risk management are now of increasing importance.

However, the fact that there is little synchronisation in global growth and asset price valuations points to an attractive risk/reward backdrop. Ironically, the time to worry about downside risk is when a strong synchronised global recovery takes place.

In 2007, there was widespread agreement about the good times, and global economic recovery and central bank policies were aligned, yet investment risks were high. Fortunately, now six years into the post global financial crisis recovery, there is still little agreement and synchronisation.

In the US, the combination of falling oil prices and the rising US dollar is leading to a sharp slowdown in US company profits. However, in Europe company profits are making a strong recovery and this is due to a weaker Euro and falling energy prices. The decline in US earnings estimates combined with the fact US equities have gone over three years without a 10% correction keeps us alert. We recognise that a significant setback in US shares can drag down equity markets globally.

As long as the earnings slowdown in the US is modest and cushioned by earnings improvement outside the US, such as Europe, the market’s long-term upward trend should not be derailed. In the meantime, we seek to exploit opportunities offered in various asset classes around the world backed by objective analysis and rigorous risk management.

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