There is no shortage of hotspots around the globe at the moment. The situation in Iraq and Syria is currently at the forefront of the headlines, but continued violence in Ukraine remains an ongoing concern.
You might therefore expect these and other factors to have provoked major market jitters. However, market volatility has been incredibly low in recent months, with the VIX Index, a measure of US stock market volatility, at its lowest levels in a decade.
Officials at the US Federal Reserve Bank have begun to wonder whether there is too much complacency over risk and some investment commentators are opining as to whether sanguine markets might represent the “calm before the storm”, pointing to a drop in volatility in 2007 on the eve of the credit crisis.
In reality none of us has a crystal ball to tell us what markets will do over the short term. We remain positive on the outlook for equities over the next few years and the longer term. However, after the strong returns on developed stock markets in 2013 which has propelled some stock market indices to record levels, the near term outlook is less clear.
With this in mind, we have taken a look at which equity fund managers have in the past performed well when markets have turned bumpier. Using our proprietary database of fund manager career track records, we have identified those fund managers with track records of at least 10 years in a particular sectors who managed to beat their sector indices a high percentage of the time in months when the indices fell.
Of course it is important to stress that the analysis below is entirely based on the past, which is not necessarily a reliable indicator of the future and does not mean these are managers who will necessarily deliver outperformance in the good times as well.
There are a number of reasons why a fund manager or team may have performed relatively well in down markets. These include:
- A focus on higher yielding companies. The ability of a company to generate a decent dividend is often a sign that the business is in rude financial health, with good cash flow. In tougher times higher yielding shares are seen as particularly attractive as the income provides some compensation for share price declines.
- Willingness to allocate into cash. Some managers may be more adept at raising cash weightings in their funds when markets are going through down periods than others. These means they perform relatively better than fund managers who are fully invested.
- Value investing. A number of the managers identified have a strong emphasis on investing in companies they believe are undervalued and avoiding high growth businesses that they believe are expensive compared to current earnings levels. When markets go through bearish phases, it is often more speculative growth companies that are hit hardest.
- Luck. When we research funds, a key goal is to assess whether an good track record is down to skill or luck
UK Equity “Defensive” Managers
UK SMALLER COMPANIES “Defensive” Managers
EUROPEAN “Defensive” Managers
ASIA (EX. JAPAN) “Defensive” Managers
JAPAN “Defensive” Managers
US EQUITIES “Defensive” Managers
For more information on the funds currently run by these teams, click on the fund name for our analysis.