Trustees told to focus less on market volatility

Speaking at an event this week organised by consultancy Barnett Waddingham, Matt Tickle, investment consulting partner, said as inflation is starting to rise, “we’re getting a lot of questions from trustees”.

Risky assets will be volatile, embrace them at your own levels of risk tolerance

Toby Nangle, Columbia Threadneedle Investments

Market intervention has greater impact than political risk

Robert Gall, head of market strategy at Insight Investment, also discussing interest rates, inflation and credit markets, said political risk has been a major focus for investors, but that this might have “been overblown”.

"You can’t get away from the fact that it’s the intervention in markets that is the key thing" to be watching out for in 2017, he said. For example, regulatory intervention in the derivatives market has led to fundamental changes.

These interventions “can have distorted effects”, said Gall, but investors should not be deflected by this and concentrate on “achieving the objectives and not getting blown around by short-term volatility”.

He noted that Brexit is reminding investors that “the world is an unpredictable place”. Consequently, “the demand for hedging post-Brexit pushed up quite significantly”.

Understand volatility

Volatility, said Gall, can be “something that people focus a little bit too much on”. If a scheme reviews its portfolio once a quarter, he explained, it can look a lot less volatile than if they look at it every day. Gall emphasised that pension schemes are long-term investors and said people are getting distracted by volatility.

He highlighted the importance of trying to clearly understand the volatility that comes through in portfolios and deciding whether it is “volatility you should be worried about, or volatility you can accept”.

Toby Nangle, global co-head of asset allocation and head of multi-asset EMEA at Columbia Threadneedle Investments, said: “One of the best things that you can do is to really examine yourself in terms of your own willingness to tolerate volatility”.

“Risky assets will be volatile, embrace them at your own levels of risk tolerance,” Nangle advised.

Unbiased advice is hard to find

Bill Whitehead, director at independent trustee company Pentrus, welcomed what he called more considered, moderate views of the impact Brexit and the US president will have on markets. “The end of the world is not nigh, but look out,” he said.

Graeme Simpson, member-nominated trustee director at the Thomson Reuters UK Retirement Plan, said it is hard to get an unbiased view on what the investment future could be like under the Trump presidency, and added: “Volatility is only really an issue when there isn’t return.”