Local fund managers were buying but not panic shopping as chaos hit the NZ and global markets last week.
In a week that saw record falls (and recoveries) in share markets, by all accounts NZ managers were on the look-out for heavily discounted quality items rather than bulk survival purchases.
Milford Asset Management, for instance, told clients it would “maintain our patient and disciplined approach as we navigate through the current volatility”.
“Whilst not immune to the volatility, our defensive positioning with significant cash holdings allows us to cushion the impact and to respond to buying opportunities as they arise,” the Milford note says.
Likewise, Harbour Asset Management notes the “market pricing across many names has improved the [buying] opportunity”.
“… we are looking to redeploy some of the underweight back into equity markets while overall maintaining cautious positioning,” Harbour says.
AMP Capital head of investment strategy, Greg Fleming, also highlights the bright-side of volatility in a communiqué issued last Friday.
“We believe this period of artificial over-confidence is in the process of being resolved, and that much better valuations (and the restoration of a range of risk premiums) will be the ultimate outcome,” Fleming says.
Frank Jasper, Fisher Funds chief investment officer, said long-term managers would use the market disruption to increase exposure to quality companies.
“We are shading into stocks we have confidence in,” Jasper said. “But you can’t deploy it all in one day… it’s a gentle process.”
He said balance sheet strength would be particularly important in the weeks ahead as volatility continues with the impact on credit markets critical for investors.
In an investor update last week, Warren Potter, AMP Capital fixed income senior portfolio manager, notes: “… credit spreads are widening in this risk off environment, reflecting that investors need a higher yield to compensate for liquidity and credit risk”.
“If there are more corporate earnings downgrades, or even corporate failure, then the significant proportion of BBB rated debt in global investment grade indexes could be problematic should we see forced selling in a market already struggling for liquidity,” Potter says. “Such an outcome would further strain already stressed markets.”
Elsewhere, Russell Investments has published a ‘downside management toolkit’ to soothe client nerves.
But if professional managers are trying to maintain discipline, some individual investors are making “knee-jerk” moves, according to Jasper.
He said some investors have traded in-and-out of market swings, in a move that has seen their portfolio values “whip-sawing” around.
However, Hugh Stevens, Smartshares chief, said while the growing exchange-traded fund (ETF) retail crowd had adopted a cautious stance there was no panic selling out of equities.
“But we have seen record flows into fixed income and cash ETFs – volume has gone through the roof,” Stevens said.
He said investors valued the immediate settlement price available via ETFs compared to the typical two-day delay, or more, for standard managed funds.
“And that’s important when there’s lots of volatility,” Stevens said.
Mike Heath, InvestNow general manager, said the direct-to-consumer funds platform had also seen increased flows into cash and bond products.
“Despite the volatility investors aren’t selling out of share funds in large numbers, though,” Heath said. “Our customers are behaving during this market uncertainty as they told us they would in earlier surveys.”
InvestNow was, however, fielding more questions about technical issues such as fund settlement times, he said.
Interestingly, the market shake-up has not dented the record pace of member growth, Heath said, with 1,500 sign-ups in March to date.
The KiwiSaver market, though, may be more panic-prone.
Even before the sharp falls last week, Trustees Executors recorded an almost 700 per cent increase in one day of KiwiSaver members shifting to conservative and cash funds across the schemes it administers.
Fellow fund admin firm, MMC, also saw a spike in growth to conservative transfers as the coronavirus pandemic infected markets early in March.
Sarah Whitelock, Mercer NZ consumer wealth leader, said over the last three weeks “we have certainly seen an increase in investment switches from our Mercer KiwiSaver members”. “This is a reminder that Kiwis should be engaging with their KiwiSaver more often, to ensure they’re invested in a fund that is suited to their risk appetite,” Whitelock said. “Speaking to a financial adviser or using the online risk profiler tool are two useful ways a member can gauge their current risk appetite.”
US equity markets closed up almost 10 per cent last Friday (March 13) following a fall of similar magnitude the previous day, setting the scene for another interesting shopping week ahead.