What this survey highlights—and it’s likely not a surprise to many—is that forging any kind of consensus opinion in this market is exceedingly difficult. High-conviction trades, at least to us, are few and far between.
The list of “uncertainties” extends from tea-leaf reading at the Federal Reserve and the European Central Bank to heightened geopolitical tensions around the globe to concerns surrounding an overly extended stock market to memories of the 2008 debacle that is still fresh in investors’ minds.
So, what’s an individual investor expected to do when the supposed investment cognoscenti can’t quite agree among themselves? Sometimes it makes more sense to stand still, or to take a step back, rather than take an uncertain leap ahead.
Putting Boring Into Practice
What this means in portfolio management practice here at Nottingham is that absent a high-conviction tactical trade idea, we think investors should retreat to beta and wait patiently for the next opportunity.
Despite today’s low volatility, opportunities will arise in some asset class some place around the globe. And if you have some “dry powder,” you’ll be in a great position to take advantage of a temporary price dislocation.
To us, today’s market sure seems like one of those times.
Bond yields have dropped lower for much of this year, making fixed income even less attractive, while equity markets have recovered valiantly from recent pullback to forge new highs. Devotees of Shiller’s CAPE ratio or “Tobin’s Q” can be heard fretting about the historically high valuations today, adding to worries about a pullback.
Rather than pursue low-conviction ideas with client dollars, why not revisit one’s core allocation, add to the “beta trade” with a low-cost broad index ETF and await an opportunity to pursue a new tactical idea?