10.14.2014
By Terry Flanagan

Volatility Back ‘With a Vengeance’

The first week of October has jolted market participants who had been been lulled by an extended calm and a irrepressible bull market.

In the first nine trading days the Dow Jones 30 industrials have moved (up and down) over 1,700 points and the Dow is down over 700 points since the beginning of the month.

“Volatility has returned with a vengeance,” Leon LaBrecque, chief strategist and founder of LJPR, a wealth management firm managing $668 million in assets, told Markets Media. “We haven’t seen the volatility that we had just this last week since 2011. That was pretty ugly.”

After spending most of 2013 and 2014 in or around the low teens, the CBOE Volatility Index (VIX) spiked well above 20 over the past week. On Oct. 14, the so-called fear gauge was at 22.8.

LaBrecque attributes the volatility to market jitters topped by economic and geopolitical turmoil. “The notion of geopolitical risk at the beginning of the year seemed like it would cause all kinds of problems. We had Syria using chemical weapons on their people. That caused a little bit of volatility. We had the ISIS threat. That caused some volatility. We had Ebola. That caused some volatility.”

The head of the European Central Bank, Mario Draghi, promised he would take all steps to get the EU out of recession, but all steps appear to involve only talking, said LaBrecque. “The ECB has not engaged in any serious monetary policy. As a result, we’re now seeing signs of weakness in the German manufacturing economy,” he said.

Ebola is a significant problem, both from a pandemic standpoint and economic standpoint, LaBrecque noted. ISIS is also a significant problem, actually more deadly than Ebola. “Like Ebola, ISIS seems to be spreading with a couple of billion dollars, tens of thousands of fighters and some very good military hardware,” he said. “However, ISIS has been around for a while, is sinister, but we’ve had bigger and badder opponents. ISIS is a fear driver.”

Investors should avoid over-reacting to the current market situation, according to Tom Elliott, international investment Strategist at deVere Group, which has more than $10 billion under advice and management.

“I would urge investors to avoid knee-jerk reactions to the oil price slump and gloomy global growth forecast that is creating the current stock market volatility,” he said. “Volatility is normal and what has been abnormal is the recent period of low volatility. What is happening now in the markets is why a multi-asset approach to investing is undoubtedly the best solution to long-term investing.”

LJPR performs both tactical and strategic rebalances based on “triggers.”

When we see things starting to approach a trigger, that’s means that we’ll do a re-balance,” said LaBrecque. “A tactical re-balance is when we think things have changed significantly enough to move away from certain asset classes. A strategic re-balance just means taking our profits off the top and putting them somewhere else.”

LJPR is now preparing its next re-balance to go a little bit more into hard assets, meaning real assets, and a little bit away from European equities, which it thinks at least for the time being may have some risk.

“We are always trying to take a look at things from a macro view, and we’re always trying to reduce the systematic risk in our portfolio,” LaBrecque said. “The biggest idea we usually are trying to come up with is looking forward, what asset classes we think are going to do the best going forward. Best in our case means, how do we avert a loss if that’s the case?”

Featured image via gitanna/Dollar Photo Club

Related articles

  1. Upstart exchange has seen market share increase to near 4%.

  2. Goldman Sachs Asset Management’s fundamental equity business manages over $20bn in thematic equities.

  3. Data extraction and integration is the second stage of a digitization process.

  4. With Ankit Mittal, Business Change Manager, Global Trading, Schroders

  5. IIGCC and lead investors will launch a pilot with companies including BP, Eni, Repsol, Shell and Total.