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(Runtime: 5:00. Read the audio transcript.)


If you think markets are more volatile than normal, you’re right, says Jack Manley, global market specialist with J.P. Morgan Asset Management. And that volatility is not going to go away any time soon.

“This is a challenging backdrop for investors right now. It is challenging at a global level,” he said. “Volatility is caused by a number of identifiable forces. The war in Ukraine is causing volatility. The threat of rising interest rates is causing volatility. The disappointing earnings season is causing volatility. The question remains, will volatility stick around even when the shorter-term drivers have faded away? I think the answer is yes. The equity market has just become structurally more volatile.”

Manley said millions of new retail investors are contributing to trade volumes and market fluctuations.

“You have to now adapt to a future where there is an empowered retail investor,” he said. “And if you think about the way that retail money moves in response to bad news or good news, it moves quite quickly. Markets are going to structurally be more volatile than they have been in the past as a direct result of this empowered retail money.”

But retail investors can push the market both ways.

“For every very bad day in the equity market, you’re going to have a good day that comes not too far after,” he said. “That’s one of the reasons it is so important to talk about optimal asset allocation, volatility and diversification.”

He said one of the more dangerous traps for investors is thinking they can time the market.

“We know that’s extremely tempting,” he said. “We can oftentimes let emotions get in the way of our investing. But timing the market seems to be one of the best ways to really ruin longer-term financial success.”

Rather, he advocates trusting fundamentals.

“Volatility is a normal part of what it means to be invested in risk assets,” he said. “We have to push through these unpleasant periods, realizing that, over the long run, time is on our side.”

He said active portfolio management — including prudent sector and security selection — is more necessary now than it has been in years.

“Diversity does not mean simply owning five stocks instead of one stock. It doesn’t mean owning large caps and small caps. It means looking across asset classes, looking up and down within the quality spectrum, across sizes, across geographies,” he said. “A well-blended diversified portfolio, built with asset allocation in mind, is going to have reduced volatility relative to more concentrated positions, but over the long run will help you out quite nicely when it comes to portfolio performance.”

Manley argued for maintaining a position in fixed income. Though bonds have not done particularly well this year, he says there are both tactical and strategic considerations.

“When we think about asset allocation right now, balance is the name of the game. It’s all about tactical versus strategic, short-term versus long-term, opportunistic versus something a little bit more secular in nature.”

For example, a short-term tactic might be to underweight underperforming, cash-hungry tech companies. The long-term strategy, however, is to realize that technological adoption is exponential, and the impact of tech is perpetually on the rise and increasingly bleeding into adjacent sectors.

He also likes alternatives — particularly real assets like infrastructure, transportation and real estate — for their ability to hedge inflation and provide strong income streams.

My key takeaway right now is that this is a complicated year and it’s going to stay complicated. And even when things cool off, you’re still going to be looking at markets that are structurally more volatile in the future than they have been in the past.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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