While volatility like that playing out as a result of the Russia-Ukraine conflict may cause some clients to head for the exits, there may also be a buying opportunity for some.
Global markets have been volatile in the wake of Russia’s invasion of Ukraine last week, selling off initially before rebounding. The S&P 500 moved lower again Monday, heading for its second straight month of declines.
While the top concern for most people is the conflict’s human toll in Ukraine, advisors are also getting questions about markets.
Allan Small, senior investment advisor at the Allan Small Financial Group with iA Private Wealth, said his client base of about 400 families falls into two camps: one group is worried about the situation in Ukraine getting worse, while the second cohort sees an opportunity to add to their portfolios at a cheap price.
“A lot of individual clients have asked me, ‘Is this the start of a bigger sell-off?'” Small said.
He doesn’t think so, partly because of the decline that’s already happened this year. Before the war in Ukraine, markets were already “on edge” due to higher interest rates expected to come as early as Wednesday when the Bank of Canada meets, he said.
Small noted the S&P 500 is in “correction territory,” down nearly 10% for the year as of Monday afternoon, while the NASDAQ is closer to bear market territory, down 13% this year. He added how fast the market can change and the panic could be gone.
“I often talk about not trying to time markets, which is obvious. People understand it, but how many of them actually follow it?” Small said.
“[Clients] still come to me and say, ‘Here’s some money. Maybe we should just hold onto it until things get better.’ My comment is, ‘We don’t know when that is. By the time things get better, markets are already higher.'”
Small said his recommendation to clients looking for growth during this time is similar to what he has recommended in the past, which is “buying on the dips, but buying selectively.”
That means looking for companies that have “good quality earnings,” such as Goldman Sachs, Amazon and Nvidia, he said.
Small recommended investors not just focus on the economic ramifications of the Russia-Ukraine situation in the coming weeks, but also what the central banks do with interest rates. He forecast both the Federal Reserve and the Bank of Canada will go forward with their hikes.
“You’ve got to be very sensitive to that, from an investment perspective, even more so than what’s happening overseas, because I think … that will be more important to the markets for a longer period of time,” he said.
Jay Smith, portfolio manager and investment advisor at CIBC Wood Gundy, said a few of his clients are quite worried but most have been through enough crises that they can look past this one.
“What’s made people extremely nervous are growth companies, because they trade at higher price-to-earnings multiples,” Smith said.
Smith recently shifted the equities portions of the portfolios he manages from half value, half growth to 65% value, 35% growth in anticipation of higher interest rates, which “discount the cash flow of companies.”
Smith said some clients have asked about selling a few positions where it’s not taxable and trying to buy back in at a lower price. His response is that he’s been drawing down for four months.
“Maybe you’re right — you sell out, the market goes way down and you buy back in. But what if you’re wrong? Then you have to buy in significantly higher. And often, to get out, you have to pay capital gains tax,” he said.
Smith added “now’s the time” for advisors to hold their clients’ hands and console them. If their clients have spare cash, they should buy. If they don’t, it’s probably the wrong time to sell, he said.