Eaton Vance small-cap portfolio manager Aidan Farrell warned investors against following the lead of sovereign wealth funds around the world, which have reportedly reduced their holdings in equity markets.
“There’s a lot of stress and strain in the marketplace,” said Mr Farrell, adding there is a lot of anecdotal evidence that sovereign wealth funds are undertaking large drawdowns of their riskier assets.
“What we see is that a lot of companies are marked down 10 or 15 per cent for no fundamental reason,” he said.
But the worst thing investors can do is to sell at a time like this, Mr Farrell said.
“If anything, if you have the appetite perhaps you have dry powder in terms of some cash you’ll probably try to top it up a little bit to make sure you’re keeping your position size in place.”
Mr Farrell played down the “sovereign wealth fund effect” that has been widely reported in recent months.
“It’s not possible to point out how much money has been pulled away by one entity in any one part of the world.
“From talking to one or two sales people in that part of the world … they say yes [sovereign wealth funds are] definitely pulling in their horns, but they’re not doing so with blind abandon.”
But smaller investors should “stick to their guns” and stay invested in the stock market, he said.
“The worst thing you can do is get nervous and change your approach because then you will crystallise your losses and you will be in serious trouble,” Mr Farrell said.
“So you need to stick with your strategy and your philosophy in these volatile times.
“It’s never easy, with what we’ve watched in the last few months. As long as you have a defined process, there’s no need to change it as long as you’re managing your risk very closely,” he said.
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