Volatility Rules

The clocks have gone forward and normally we would all have a spring in our steps looking forward to warmer weather and long sociable evenings. Not this year it would appear as we now hear restrictions could last until the autumn. As I write this the FTSE 100 has opened weaker and we are not expecting any lasting strength until we have a better idea of when we will return to normal.

Meanwhile, technical trading continues to impact. Institutions now have automatic rebalancing tools. This means that a portfolio will be adjusted to take account of market movements. As equities fall the fund will buy more to ensure the portfolio continues to reflect its objectives. Conversely, tracker funds will sell stocks in a falling market to ensure they continue to accurately reflect the index they are following. This can artificially skew markets at the best of times, but in the current environment this is helping to provide some extreme swings. Add to that the end of Q1 where trading positions are closed and you have the perfect mixture for volatility.

The chart below highlights the extreme volatility of the S&P 500 over the past couple of weeks. Who’d be an investor trying to make sense of this!




Fortunately, you, our clients are being pragmatic and not making panic decisions. We continue to hold record levels of cash in the portfolios and await signs of a sustained upturn or, alternatively, unrealistically low valuation levels. We will not let short term spikes such as we saw 24th to 26th unduly influence our thinking.

Paul Beasley ACII

Chief Executive Officer