Industry insider says rebound was advisors and institutions repositioning after algorithms kicked in during sell-off
.jpg)
While the global stock sell-off sent a tremor through the industry, the US markets rally appeared to have partially settled some nerves.
According to one industry inside, the rebound was, in part, the reaction to automatic computer selling and the amount of cash that is still sitting on the sidelines.
Jason De Thomasis, at De Thomas Wealth Management, said he was happy to have a “correction of sorts” although admits the short timeframe of the sell-off increased the element of fear among clients. However, he believes the subsequent stabilising in the markets could return a large number of investors to previous levels of complacency.
He added that the algorithms and programmes, which he and many others believe kick-started the recent volatility, are playing an increasingly large role.
He said: “A lot of white papers I’ve read and the details I receive is that once the market hits a certain valuation, automatic selling is going to take place and you can’t really stop that.
“That’s why I noticed that when the sell-offs did occur, they would be quite exaggerated towards the end of the day when, I guess, certain triggers are being reached and when algorithms kick in and the computers start selling off.
“The follow-up to that would be that once the actual programmers, advisors and large institutions realise what’s been sold and they want to reconfigure or rebalance their large client holdings, they buy back in.”
De Thomasis also believes some fund manager have taken advantage of better valuations to position themselves for the long term. He also decided it was a good time to buy in and looked to international markets that were further behind in the growth cycle.
He said: “In terms of our approach, based on valuations, yes sure [we bought]. We still include a diversified portfolio, we still include large cap markets, even though the price to earnings is historically high. In a well-diversified portfolio, we still can’t exclude that and, with last year’s momentum, that's anywhere between 10 to 15% of gains that we would otherwise have forgone. Even with the pullback, if we’ve earned 15% and we’ve pulled back 10%, we are still in the positive, so we don’t want to ignore that.
“But we did see opportunity and put some money into play with more international valuations, for example Japan and emerging markets, where their P/E ratios were already lower than North American markets and fell further for future opportunity.”
With all the media coverage and swings in stocks, has the market sentiment changed? De Thomasis said that for the average investor it probably has but that the money managers remain bullish.
He said: “I still think that if you are an investor and not a speculator, I don’t think much has changed. And when I say speculator, I mean people who are trying to play the marijuana sector or crypto, I think it does play a part and put more fear into what they are doing.
“And because there was complacency the last year or two, people forgot about risk. People weren’t concerned about it. It was a case of put money in, how much money can I make and how fast can I make it? They haven’t looked at the history, especially people who are into speculation. They are not looking that the average market decline from peak to trough is 14-15%, which hasn’t happened even this year yet, so I just think it will change the speculator but I don’t think it will change the true long-term investors’ view.”
