Changing asset allocation calls amidst market volatility

Rob Spanjaard, Director at Rezco Asset Management.

Local equity markets have experienced much volatility over the last year, veering between sharp corrections and record highs. As the market continues to react to concern over growth in China, weaker commodity prices and the issue of when the US Federal Reserve will finally raise US interest rates, active local asset managers should be changing their asset allocation calls to offer a measure of protection against this market volatility.

This is according to Rob Spanjaard, Director at Rezco Asset Management, who says this strategy demonstrates the attraction of multi-asset or balanced funds during times of market volatility, as these funds can increase or decrease their exposure to different asset classes.

“We saw the recent fairly extreme market volatility coming some time ago now, and in response have been actively moving our asset allocation away from equities and further into cash. This defensive call wasn’t the popular message four or five months ago; however, our August performance proves our strategy. We are now getting the upside but aren’t participating in the downside. In other words, we are getting risk-adjusted returns and are fulfilling our mandate of preserving capital and creating wealth,” he says.

He clarifies, “These asset allocation calls are undertaken by the fund’s portfolio manager, whose job it is to determine which asset class will perform the best, given the current market environment. Portfolio managers who do their job correctly manage to reduce the downside that their funds experience but at the same time profit from a significant portion of the upside.”

Spanjaard says, “Keeping an investment portfolio that is invested across various asset classes is a sound strategy to ride through periods of adverse and unpredictable market movements. Core to what we are trying to achieve at Rezco is to obtain risk-adjusted returns for our clients, by gaining the most return without exposing their investment to too much risk. Our investment philosophy is to preserve capital in times of high volatility and to create wealth for our clients when the opportunities present themselves.

“This is obtained by picking the stocks in the portfolio that participate as much as possible in a bull market, and as little as possible in a bear market. By increasing the weighting of the fund to equities during times that are favourable for equities, and increasing the weighting of the fund to cash during times that are not favourable to equities, an asset manager is able to preserve investment capital and create wealth.”