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Protection against market falls

20 days ago

Sheldon MacDonald CFA, Deputy Chief Investment Officer Architas

Today’s Covid-19-driven declines are clearly concerning, but markets inevitably have downswings as well as upswings and we’ve seen drops of this level before. So how can we provide some potential fund protection and position ourselves for any potential rebound?

Maintain the right levels of risk

Once people have made strategic decisions about how much investment risk they are willing to accept, they need to know they will be invested at a level of risk appropriate to them. We offer funds with various levels of risk and provide funds that aim to stay within those levels of risk. Our funds consist of a range of underlying fund holdings that comprise a range of investment assets. We closely monitor these underlying fund holdings and the mix of asset holdings. This helps us to maintain appropriate levels of risk in line with the funds’ objectives.


Be diversified

Diversification means ensuring your eggs are in more than one investment basket. Effective diversification can be an important approach to potential protection against market ups and downs. Bonds usually go down less than stocks (equities) – or often even go up! – in a market downturn. So the typical response to falling markets is to increase bond holdings. But we invest in other areas too, including real assets such as precious metals, land, equipment and natural resources. This increases our diversification options, although not all our funds will invest in these assets types.


Reduce risk in vulnerable areas

In a market downturn, we try to reduce risk tactically in areas we think could be hardest hit. We analyse events, market starting points and valuations, and then exercise our judgement about which areas could fall the most. We can also increase the level of cash we hold in our funds, and cash is considered very low risk. But that, for us, is generally a short-term measure, as cash can fall in real value over time due to inflation.


Select appropriate funds

When appropriate to the strategies of the funds we manage, we try to ensure our underlying fund holdings are diversified across different asset types and investment styles. We want to own a range of underlying funds that perform differently from each other in different market conditions. When selecting funds, we don’t just look at what is happening at that point in time. Where possible we take the time to research whether the underlying assets can perform relatively well when markets fall. We also consider how to blend funds for protection in falling markets by seeking to ensure our funds are as effectively diversified as they can be.


Seek funds that hold quality stocks

In the current environment, for Architas funds investing in stocks, we like underlying funds holding quality stocks. Such stocks look relatively well-positioned to deliver stable earnings regardless of economic circumstances. They are generally financially strong companies with good market positions, enabling them to hold up relatively well in situations such as the current one. Unilever and Nestlé are classic quality stocks: people still have to buy their toilet rolls or baby food even in difficult economic times.


Don’t panic

Things may look difficult today, as many assets have fallen in value. But we believe in the ‘don’t panic’ mind set. Governments have provided unprecedented economic support and enacted measures to limit the virus’s impact. The current situation will pass. It will then be reasonable to expect markets to make a recovery. But we think prudence is key right now.

 

The value of investments and any income from them can go down as well as up and is not guaranteed, and you could get back less than you originally invested.

AXA is a worldwide leader in financial protection and wealth management. In the UK, one of the AXA companies is Architas Multi Manager Limited (AMML), an investment company that provides access to other investment managers’ services through a range of multi-manager solutions, including regulated collective investment schemes. AMML in the UK works with AXA Group internal fund managers, to find out more information about this please visit architas.com/inhousemanagers/

Architas Multi Manager Limited is a company limited by shares and authorised and regulated by the Financial Conduct Authority (Firm Reference Number 477328). The company is registered in England: No. 06458717. Registered Office: 5 Old Broad Street, London, EC2N 1AD.


Sheldon MacDonald, CFA

Deputy Chief Investment Officer

Sheldon co-manages the Architas Multi-Asset Active, Passive and Blended fund ranges, as well as the Architas Global Equity Income fund. He oversees fund selection and manages the products’ asset allocation and investment strategies. He also leads fund manager research on global equity strategies.

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