Any investor worth their salt knows that equities are volatile – it’s a defining feature of share markets, and something experienced investors plan for.
Yet even a cursory look at the ASX 200 shows that what the market has experienced over the past 18 months has been something different.
Following record highs in early 2020, COVID-19 drove the index down to its lowest point in five years, before government support pushed it steadily up to new heights in August 2021.
Now the market is wobbling again.
While the A-VIX – the ASX volatility index – had been tracking around 11 to 12 over the past six months, it moved above 15 in recent weeks. It’s a similar story in the United States, where the CBOE Volatility Index, based on the S&P 500, has also begun to track up again.
Daily market moves have also become more significant, with a 1.5 to 2 per cent change more regular.
Perks Private Wealth Director Simon Wotherspoon points to a convergence of factors driving volatility up.
“The market has recovered on the basis of government fiscal support and accommodative monetary policy, but now there’s a number of issues creeping into investors’ minds, like COVID-related supply chain disruptions… and that’s factoring in to market concern about inflation.
“Inflation is causing long bond yields to rise… and when this happens, the valuations of long-dated assets, like growth and technology stocks, fall.
Wotherspoon said people are also worried about China’s Evergrande, a massive property developer at risk of default on its reported $300 billion of debt.
“All these things create market uncertainly and I think the market is inclined to bank some profits and digest what comes next,” he said.
However, Wotherspoon also points out that periods of volatility can present opportunities for investors, and that it’s important to take a long term view of investing.
“A healthy exposure to cash and short-term fixed interest is a drag on the portfolio when markets are roaring up, but allows you to take advantage of opportunities when markets experience inevitable wobbles,” Wotherspoon said.
“This current market volatility is no different. It presents opportunities for patient, long-term investors. At such times, assets pass from weak hands to the strong.
“We structure our client portfolios with a long term view that anticipates volatility. We’re positioned in a way that can manage through, with diversification a key feature.”
Wotherspoon said that they have some exposure to technology stocks, but equally to things that will perform well through the reflationary period.
“So taking a long term view, not getting caught up in the short term headlines and having a diversified portfolio enables you to not panic,” he said.
“More broadly we very much focus on quality assets that, even though they are not immune to market ups and downs, they prosper in the long run.”
Perks also has a focus on offering wholesale clients the ability to invest in a range of alternative, unlisted assets, both in Australia and abroad.
These include investment in commercial property, global transport, global infrastructure, private credit and soft commodities, which Wotherspoon said provides portfolio diversification for enhanced resilience against market fluctuations.
“These assets may offer robust opportunity in the current market and where surplus cash might best be allocated as we digest current market volatility,” he said.
“Alternative, unlisted assets like these are not normally available to retail investors through mainstream structures. They require dedicated, specialist research to undertake the necessary due diligence on wholesale offers to uncover opportunities that meet investor objectives without unforeseen risk.”