Given the recent outbreak of Coronavirus and other factors, an investment company such as AGFiQ needs to have a good handle on what information to provide to advisors.
ETF Trends spoke with Mark Stacey, Senior Vice President, Co-CIO AGFiQ Quantitative Investing, and Head of Portfolio Management, about the current environment’s impact on the overall market, and what are the best strategies for advisors.
Stacey notes how, irrespective of the Coronavirus, when looking at where the market is from a cycle perspective and if it can be extended, it’s important to think about the previous year and the strong returns seen then. That comes from a situation of multiple expansions. The price drove the profits, as opposed to the earnings, which was a function of people becoming comfortable with a prosperous future ahead, where the earnings would catch up to the price.
Keeping that in mind, Stacey is telling clients, “Where both your equity portfolio and your bond portfolio stand today because you had strong bond returns. People often focus on equity returns, but not the bond returns. When we move forward, don’t get caught up in viruses and where we are in the cycle, as you’re likely to get lower returns in both asset classes because of the strength of returns you’ve had over the last number of years, and the fact that the market is getting more expensive than it was, and bond yields are going lower.”
Lower Bond Yields & Other Changes
Bond yields have been going lower recently because events making people nervous lead to increased purchase of government bonds, because of the security of that asset class.
As a way to ride with this evolving status quote, Stacey adds, “If returns are lower going forward, how do you navigate that? Well, the one thing that has happened throughout this bull market since 2009, any predictions of the rapid end of the cycle or when it’s going to stop, has probably been the wrong thing to do. So, you’d want to be able to stay still invested in both asset classes in some way. But then, how else can you protect yourself or have something in your portfolio that helps out with situations like the Coronavirus?”
This is essentially the key, as Stacey explains. He believes it’s about navigating through the market that’s been seen, featuring significant returns in the past, and lower returns going forward. There’s also the question of how to stay invested while also navigating a choppy marketplace going forward due to lower yields. There’s less of a cushion from negative returns to work with when the return potential is lower due to volatility or downside.
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