Guy Monson, chief investment officer investment manager Sarasin, has revealed the four actions he has taken to protect clients from increased levels of market volatility.
Mr Monson said the ending of the policies of quantitative easing around the world has created a climate where volatility will be higher, and since late last year he has been moving his portfolio to assets he thinks can perform best in the event of a downturn.
The four assets the fund manager has moved assets into are cash, bank shares, value funds and products that manage volatility.
Mr Monson said: "For years when interest rates were low, cash wasn't really an asset class. But I think it can come back now. A real feature of the market sell-off in the first two weeks of February was that every asset class, developed and emerging market equities, bonds, infrastructure, hedge funds, all fell.
"If that is going to be the case with future corrections, then cash will come back as an asset class."
He said the market jitters seen in recent weeks are the result of investor nervousness about higher interest rates.
Mr Monson said bank shares are among the few assets that can perform well as interest rates rise, so will act as a diversifier in times of market stress.
Mr Monson said the fact that we may have an improved outlook for global economic growth at the same time as market volatility implies investors should have more capital in value funds, rather than growth funds.
He accepted that investors have been urged to favour value funds for some time, yet growth assets have consistently outperformed.
But he said market turmoil will lead to certain assets falling in price unjustly, and value fund managers are skillful at acquiring those.
The final asset he has been buying is volatility insurance, which is a product designed to perform better when equity markets are falling.
David Scott, an adviser at Andrews Gwynne in Leeds, said the recent market volatility is a warning about high debt levels in the global economy and the uncertain outlook for the world as global central banks change course.
david.thorpe@ft.com
