11.30.2011
By Terry Flanagan

Allocators Heed Flexibility

As 2011 wraps up, investors push for the markets just to take their course.

For most market participants, it seems as though 2011 has presented a constant stream of up and down moves—amount to a massive wave of market volatility that will remain rampant in 2012.

While volatility is sometimes a natural part of the markets, many investors seem to blame its roots stemming from macroeconomic troubles and policy makers.

“This year has been a story of global leveraging, de-leveraging, and the dangers of excessive leverage on a sovereign, personal and corporate level,” said David Ford Jr., managing partner at Gatemore Capital Management, a boutique investment advisory firm.

“We’ve taken advantage of the dislocations in the markets where there are opportunities,” Ford said.

Perhaps “dislocations” are one of the few drivers of prosperity for market participants this year. Those who stay true to structured investment ideas or themes may have suffered, according to Gargoyle Group’s Managing Partner, Jay Easterling.

“It’s no surprise that the big investment themes didn’t work in 2011,” Easterling said. “When there’s clearing, they’ll work, but you need to have the strong hands to hold on to them.”

Gargoyle primarily advocates options overlay strategies for institutions that are looking to hedge their strategies.

“The big investment themes will work over long periods of time,” Easterling cited at the Markets Media Global Markets Summit.

“You have to be nimble to change your view as things change quickly, due to the many ups and downs the markets have seen,” said Jason Gerlach, principal and acting managing director at hedge fund Sunrise Capital. “The best strategy is to balance different themes within your portfolio and adding technical strategies.”

Others that employ a systematic investment approach may veered off course due to the “micromanaging nature of central banks and policy makers,” according to Arun Kaul, managing principal and chief investment officer at buy side firm Olympian Capital.

“The more involved central banks and policy makers micromanage the markets, the more valiantly they’ll react. From a portfolio design perspective, it’s important that you need to separate the macro from the fundamentals.”

Though perhaps an annoyance to investors, policy makers are here to stay as the hard lessons of the 2008 crisis are still being realized in 2011.

“Policy matters a lot; and it will day-to-day, week-to-week, and month-to-month,” said Michael Kelly, managing director and global head of asset allocation and structured equities at PineBridge Investments, an off shoot asset manager of AIG (American International Group).

For Kelly, 2011 is the “fourth chapter of global restructuring and orientation, which began in 2008 and 2009.”

“We’ll continue to see a pattern of global realignment going into 2012,” he said.

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