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Hedge Clippings | Friday, 28 January 2022
As January draws to a close, readers of Hedge Clippings won't need to be reminded that markets are suffering a severe bout of volatility and depending on the market involved, with some (such as Bitcoin and other cryptocurrencies) considerably more so than others.
As at COB yesterday, the ASX200 was down over 8% YTD, while the tech heavy Nasdaq is closer to double that. Meanwhile Bitcoin has halved since the heady days of last October. Whilst the ASX200 has rallied by over 2% today, there's no doubt that markets, driven by years of easy money, have placed in stark relief the risk of higher interest rates, driven by the reality of emerging inflation.
Combine that with the real threat of Russia invading Ukraine, and ongoing concerns that China might do the same to Taiwan, and no wonder that investors in a range of markets, including critical commodities, are nervous. Oddly, gold, normally a safe haven in troubled times, seems not to have followed suit. Maybe bitcoin has taken over after all?
Hedge Clippings is not a stock tipping service, nor if it comes to that, one in disguise. For investors not wanting to navigate the dangers of direct investing in equities, we have always believed in the adage of leaving it to the experts - namely fund managers. Of course, selecting which sector, strategy, manager or fund to invest in is easier said than done.
Regular readers of Hedge Clippings would be well aware of our regular advice to thoroughly research and then diversify - both across asset class, strategy and fund. And in times such as these, self directed investors have a distinct advantage over their institutional counterparts as a result of being able to invest in a wider selection of smaller, boutique funds and managers who are not only more nimble and flexible than larger managers but open for them to invest in.
Put simply, most institutional investors and large super funds can't or don't allocate to managers with less than billions of dollars under management, and are therefore limited for choice.
This may seem at odds with conventional wisdom that the larger the manager (or greater their funds under management) the "safer" they are. However, not only do smaller boutique managers and funds consistently outperform on average, they remain small enough to invest across the entire market, rather than having to focus on those stocks with sufficient liquidity to meet their risk and concentration mandates.
And when markets descend as volatility increases, flexibility becomes vital - both to avoid risk and to make the most of the opportunities that volatility inevitably brings.
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