Pete Drewienkiewicz
“The time horizon for a lot of DB schemes is getting pulled in and with volatility what’s important is your time horizon.” Pete Drewienkiewicz, Redington
There are investing styles that many managers follow, particularly quality and defensive, that tend to underperform in the market in big rallies but perform when we have volatility. To say broadly that active management has a better time when volatility hits…to be honest, some people are guilty of a bit of wishful thinking there. Datta: The issue is if markets lose their thrall to central bank policies then internally there’s more diversity in the markets, the interim market correlations will fall and that will help active managers. We have seen false dawns on this over a number of years, so I’m not holding out any hopes that active man- agement is making a big comeback. The other point is that almost 50% of US assets are passively managed. There is some academic work suggesting that there is a point at which active managers are advantaged, but volatility per se is not going to rescue active management. Bart-Williams: Volatility returning to the market can be anyone’s friend. If you are a passive investor, for example, and you imagine that volatility is doing an oscillation around a fundamental true value, perhaps due to sentiment say, if you average in over time volatility can be your friend. So volatility is not only your friend when you are active. Volatility per se does not necessarily mean active managers are going to outperform. However, if increased volatility were due to a lack of support from central banks, which was previously making it
April 2019 portfolio institutional roundtable: Managing volatility 17
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