Andrew Bascand: Harbour chief
New Zealand’s fund managers were buying at the margins last week as the biggest wave of volatility for years hit the markets.
Andrew Bascand, head of Harbour Asset Management, said the sharp downturn in Australasian shares early last week on the back of global uncertainty opened up the market for bargain-hunters.
Bascand said Harbour added to its favoured stocks during the week as mainly offshore institutions bailed out of Australasia in the wake of an earlier Chinese market meltdown.
“The market reaction was exaggerated,” he said, with US-based hedge funds selling down solid Australasian stocks on a Chinese contagion fear.
Slade Robertson, Devon Funds Management portfolio manager, echoed Bascand, saying the market swings provided some relief after months of stretched pricing.
“We’ve been frustrated by valuations for some time,” Roberston said. “So the volatility was seen as an opportunity to buy quality companies at good valuations”.
While local managers were able to pick up bargains out of the chaos, Bascand said the action was mainly in large-cap stocks.
“Many of the smaller stocks didn’t trade,” he said.
Rebecca Thomas, Mint Asset Management chief, said the firm “put its toe in the water” in a few companies as the market fell early last week.
“There was some stock-specific opportunities as valuations were improved by the dip,” Thomas said.
She said Mint had gone into the week with relatively high cash weightings in its Active Equity and Diversified Income funds (25 per cent and 40 per cent, respectively).
“The funds are designed to go into cash where it’s difficult to see value,” Thomas said. “And over the last three months we’ve been slowly increasing the allocation to cash.”
She said further market volatility was likely, requiring a disciplined approach from investors.
“There’s going to be some difficult days,” Thomas said. “We’re also communicating with our clients to make sure they understand that over the long term there will be market dips. Most of our retail clients are through financial advisers and we’ve haven’t seen any signs of panic from them.”
Paul Harrison, managing director Salt Funds Management, said the week was a good one for active managers.
“As long as our valuations still hold, there’s quite often buying and selling opportunities in volatility,” he said. “We were definitely in the market.”
According to Harrison, many of the sellers last week appeared to be from offshore passive-style vehicles – including exchange-traded funds (ETFs) – trading on momentum.
“Lots of players in the market are driven by momentum,” he said. “We saw lots of selling at the end of the day last week – probably from passive funds rebalancing.”
Harrison said offshore data showed huge amounts of money flowed in and out of ETFs during the week.
“People appear to be trying to time the market with ETFs – they’re not looking at stock fundamentals,” he said.
In a note to clients, Russell Investments says: “Sometimes, short-term volatility provides good buying opportunities.”
However, the note says Russell had already been paring back its exposure to equities during August in anticipation of rising US interest rates.
“Volatility in emerging markets has further validated our stance, and we have been satisfied with our defensive position as broader global markets have recently begun to sell off in earnest,” the note says.
Bascand said Harbour was “neither bullish nor bearish”.
“Investors should expect more normal returns from equities – in the single digits,” he said. “There probably won’t be any sudden recovery. Although shares bounced last week, they’re still 5 per cent down [from the August peak].”
The NZX/S&P50 closed at 5670 last Friday, down from a high of 5957 early in August.