Syria crisis: professional investors reveal their strategies
Investors have sought safe havens in the past two weeks, fund flow data from Bank of America Merrill Lynch shows.
Equities and bonds saw $20bn outflows in just one week to 22 August, driven by the prospect of a slowdown in US quantitative easing. US equities were the hardest hit, posting their largest weekly outflow since June 2008.
Money market funds were the recipients of those flows, taking in $22bn.
Concerns were compounded last week by the prospect of Western intervention in the Syria crisis, while politicians warned the US is nearing its debt ceiling once more.
However, professional investors warned indiscriminate selling and changes to long-term views are particularly dangerous during such volatile times.
Gary Potter, co-head of F&C’s multi-manager team, said: “Investors should remember they are in the market for five to ten years, not five to ten days. It is dangerous to cast aside long-term investment views on economic concerns.”
He pointed out that, despite the rush out of equity markets, investors have not turned to bonds this time, as the asset class has lost its defensive qualities.
“Two years ago, people would have turned to the bond market, but the yield on 10-year UK gilts has been rising this week, not falling, as we would have expected,” he said.
“Bonds and cash are no longer safe havens, they guarantee a loss.”
James Calder, research director at City Asset Management, said the market reaction to the events in Syria is exaggerated, and equities are still on track to finish the year strongly.
He increased his cash allocation to around 10% during the summer, as markets seemed “fragile”, but sees current geopolitical concerns as a buying opportunity, as he expects markets will rebound.
“We may increase our weight to UK equities, and we are still positive on the US and even emerging markets and South East Asia,” he said.
“But we will wait to see how the Syrian conflict pans out before we buy.”
Calder is also looking at structured products that offer exposure to oil for his more aggressive mandates, after the price of Brent crude oil shot up to $117 per barrel.
He already has a small allocation to Artemis Global Energy and is looking at Investec Global Energy.
Robert Bowie, portfolio manager on Aberdeen’s multi-manager funds, agreed investors’ reaction to macro uncertainties may create investment opportunities in the short term.
“We have had a high exposure to US equities relative to peers and we are still benefiting from this,” he said. “We are also keeping a close watch on Europe as there are early signs of improvements.”
One of the beneficiaries of recent geopolitical tensions has been gold, which topped the $1,400 per ounce mark this week to enter a new bull market. The spot price has risen 20% since June.
Dalton Strategic Partnership’s Luca Vaiani has a 10% allocation to precious metals in the Melchior Selected Trust Global Multi-Asset fund. “I am not changing my precious metal allocation, and would look to add to it further if the price goes down,” he said.
Others, however, are more cautious and prefer to stay clear of the commodity, as it has been volatile and tough to price.
“We do not like gold, as it has been difficult to get this allocation right this year,” said Calder.
Potter added the rising gold price reflects a predictable market reaction in times of stress and does not warrant a dramatic change in investors’ allocations.