Having worked in this industry through the Asian Crisis, the Dot Com Bubble, Events of September 11th, and the Financial Crisis. I have never seen markets like this.
There are always similarities and effects in the market, but this is something that no one has experienced. We have seen crashes where certain sectors have been impacted and 10% plus daily moves in stocks become temporarily the norm but not across the whole market like we have been seeing.
The world has changed and will not be the same after the coronavirus. Never globally has the same cause been responsible for every individual person’s problems, concerns and fears. Reflecting on what’s important to all of us, health, family and friends brings us closer together and will lead us forward.
Personally, I have long thought that active fund managers would make a comeback. In October, I sent an email noting that: ‘There is a lot of talk of the increase in close volume and move from active to passive money. With the increase in passive funds it’s worth noting that actively managed funds are better placed for downside protection. I’m sure at some point going forward this will come in to play and reflected in performance.’
I think we will now see the advantage of active management performance as markets recover and we get to a point where we can reflect back on the current situation.
Active management, depending on the mandate, has the ability to hold cash and active managers are less constrained to index moves. The ability to underweight/overweight stocks/sectors and hold cash will be reflected in greater performance more than justifying the larger management fee for astute fund managers.
Whilst we are set for a prolonged period of uncertainty, which will involve further volatility, we will get through this and there will be stocks and sectors that will lead the way. No doubt there is going to be an economic lag that may last years.
In the future, when we look back with hindsight, we will see the opportunities that were available. In any large selll off or market crash trading anywhere around the ‘V’ always benefits long term performance. Advances in technology have enabled us to continue to maintain services and working from home for certain industries is proving seamless. This is going to change the way many people work in the future. When the chaos caused by the virus is over there will be more homeworking, and more jobs for asset managers than before it happened.
Juan-Carlos Rhodes is a trader at a U.S. bank. This is an amended version of a note he sent to clients last week.
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