Fund managers say there has been no panic selling from investors despite the market's volatility over the past few months. Money market funds in the United States, exposed to the subprime mortgage, recorded losses at the end of last year, but mutual fund managers said the impact on long-only funds, that invest in equities and bonds, had been modest.
Wilfred Sit, regional chief investment officer at Mirae Asset Global Investments, said that some fund managers had become more cautious when it came to switching investment strategy.
'I believe a lot of long-only funds have turned more cautious and reduced their portfolio risks, and have placed focus on companies with more earnings certainty and lower risk profiles,' he said.
The more careful fund managers have increased their holdings in cash in order to offer more downside protection to the portfolios. The increased allocations in cash will also allow the fund managers to pay out any potential requests from investors for redemption.
However, discretionary portfolio managers at private banks, such as Lombard Odier Darier Hentsch (LODH), said investors had quite significantly reshuffled the structure of their portfolios during the past three months. 'We can see from surveys of the fund management industry worldwide ... the severity of the financial crisis - as well as its potential spill-over effect on the real economy - has induced a significant increase in aversion. This means that investors are selling risky assets and seeking comfort in Treasury papers. This has to some extent receded since the US Federal Reserve bail-out of Bear Stearns in late March,' said Serge Ledermann, an LODH partner.
The Chicago Board Options Exchange Volatility Index, which measures market volatility, reached 32.24 points on March17, and was hovering around 20 points between April22 and April30. From 1990 to last August the average was 18.9 points . The index reached 37.5 points on August17 last year, its highest level since 2002.
'Equity market volatility has increased dramatically since the credit crisis began last summer,' said Nicholas Cowley, fund manager for Henderson Horizon American Equity fund. 'However, it is important to remember that from 2004 to 2006, volatility was unusually low. And levels now are still well below those seen in past crises.'
