Corrections, Market Timing Risks and The Value of Valuation – Entasis Newsletter 4Q18

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Section Summary

  • Market Notes – Fourth quarter returns across all global equity markets were broadly weak. Conversely, fixed income markets generally held up well. A combination of factors drove the volatility in equity markets, but slowing economic growth, concerns about future profit growth and interest rate uncertainty highlighted the list.
  • Equity & Fixed Income Comments – Our portfolio positioning in the equity component of client portfolios has been focused on bolstering the resilience of our U.S. investments given what we perceive to be elevated risks over the short- to intermediate-term. Fixed income investments are positioned for our expectation of yield curve flattening and to take advantage of opportunities outside of corporate credit with better risk-adjusted value. Across all asset classes we generally favor active management to passive at this point in the economic cycle.
  • Research Focus – Corrections. How often do they happen? How to counter the emotional reactions that tend to accompany short-term market volatility?
  • Client Focus – Market timing requires two largely perfect decisions to be successful – when to sell before the market goes down and when to buy before the market goes back up (or vice versa). We review the impact of getting those decisions wrong.