- Slides: 10
MARKET INSIGHTS Market Volatility Investing
Introduction Whilst economies and stock markets tend to rise over time, the path isn’t always smooth and downturns can lead to portfolio setbacks. After a long period of rising stock prices it’s worth considering subtle shifts to build portfolio resilience. Our experts recommend six strategies that should help limit the downside when times get tough, and keep long-term returns on track.
Keep your balance Timing the market is notoriously difficult, so after a long market rally, make sure portfolios are balanced. 23% 41% RETURNS MISSED All shares sold 1 year before the average market peak. All shares sold 2 years before the average market peak. Please refer to the information detailed on the penultimate slide for source references. MARKET PEAK O T P EAK U P N RU KET R A M M DO ARK WN ET TU RN It’s impossible to know precisely when a stock market will peak.
U. S. RECESSION Stay global £ £ £ £ £ U. S. MARKETS £ £ £ £ OTHER MARKETS The first economy hit by recession is not always the worst affected stock market. In a U. S. recession… stock markets in all regions tend to fall, with other markets sometimes falling further than the U. S. Please refer to the information detailed on the penultimate slide for source references. Staying invested across all regions helps to avoid all your money being in whichever market falls the most.
Smaller companies tend to be less resilient in a downturn. Please refer to the information detailed on the penultimate slide for source references. SHARE PRICE Bigger is often better Investing in larger companies can help your portfolio when times get tough.
Growth is over-rated In a downturn, expensive growth stocks often underperform. LARGE QUALITY Choosing large, quality and value stocks over small, expensive, growth stocks should help buffer your portfolio during a downturn. Please refer to the information detailed on the penultimate slide for source references. VALUE STOCKS GROWTH STOCKS
Think before you lend Lending to companies, or even sometimes governments, can be riskier in a downturn. LEAST RISK Government bonds in countries with room to cut interest rates, like the U. S. DOWNTURN Government bonds in countries with limited room to cut interest rates. Companies with lower risk of not being able to pay you back. Considering carefully who you lend to can improve portfolio resilience as recession risk rises. Please refer to the information detailed on the penultimate slide for source references. MOST RISK Some companies may struggle to pay back lenders.
Don’t let conditions derail you Some styles of investment are designed to respond differently when markets fall. NDS U RO F C A M DOWNTURN Some strategies such as macro funds have responded differently in recent downturns compared to equity markets. Please refer to the information detailed on the penultimate slide for source references. Adopting flexible strategies can keep your portfolio on track. S&P 500
J. P. Morgan Asset Management Sources: Keep your balance: Bloomberg, Robert Shiller, Standard & Poor’s, J. P. Morgan Asset Management. Market peaks used in calculations are for the S&P 500 index based on monthly price data and include the following peaks: Dec 1961; Nov 1968; Jan 1973; Nov 1980; Aug 1987; Mar 2000; and Oct 2007. Data as of 31 March 2019. Stay global: FTSE, MSCI, Refinitiv Datastream, Standard & Poor’s, J. P. Morgan Asset Management. Statements are based on the maximum drawdowns from the last seven market peaks prior to US recessions for the following indices: S&P 500, TOPIX, FTSE All-Share, MSCI Europe ex-UK, MSCI Emerging Markets. Bigger is often better: FTSE, MSCI, Refinitiv Datastream, J. P. Morgan Asset Management. Statements are based on a relative performance analysis for small-cap stocks relative to headline equity indices for the US, Europe and UK. For the US, Russell 2000 is compared against S&P 500 over the last three US recessions. For Europe, MSCI Europe Small-Cap is compared to MSCI Europe over the last two US recessions. And for the UK, FTSE Small-Cap is compared to FTSE 100 over the last three US recessions. Growth is over-rated: MSCI, Refinitiv Datastream, J. P. Morgan Asset Management. Statements regarding value and growth stocks are based on a relative performance analysis of MSCI World Growth and MSCI World Value, over the last six S&P 500 downturns preceding recessions. The statement regarding large and small cap stocks is deduced from the analysis listed in the “Bigger is often better” section. The statement regarding quality is deduced from a relative performance analysis of J. P. Morgan Asset Management Quantitative Beta Strategies’ S&P 500 Quality index and the S&P 500 over the last three US recessions. The S&P 500 Quality index produced is the top quartile quality stocks, determined by measures of profitability, financial risk and earnings quality. Think before you lend: Bank of America Merrill Lunch, Bloomberg, Refinitiv Datastream, J. P. Morgan Asset Management. Statements are based on a total return analysis of US Treasuries, US high-yield and US investment-grade indices over the last two US recessions. Indices used are as follows: US Treasuries – Bloomberg Barclays US Agg. Gov. ; US high-yield – Bof. A/Merrill Lynch US High Yield Constrained; US investment-grade – US Agg. Corporate – Investment Grade. Don’t let conditions derail you: Bloomberg, Standard & Poor’s, J. P. Morgan Asset Management. Statements are based on a total return performance analysis of macro funds and the S&P 500 over the last two US recessions. Macro funds index used is the Hedge Fund Research Macro Index.