When the bottom fell out of the market on August 24, seasoned portfolio managers had a simple message: don’t try to catch the waterfall.
“The catalyst for putting money to work is when you see a waterfall decline – and what we saw back in August was a waterfall decline, a selling climax that took place,” says Sandy McIntyre, chief investment officer, Sentry Investments. “You don’t try and catch the waterfall decline, but you prepare for a period of weeks to take advantage of days when the market is having a fainting spell, and put capital to work.”
McIntyre, who describes his role as managing people who manage portfolios, provides mentoring to the junior portfolio managers to help them evolve in their careers.
“We don’t have a command culture here, where I’m sitting at the top of a pyramid telling people ‘you must do this and you must do that,’” he says. “The organic approach is something we embrace here at Sentry.”
When training junior advisors, McIntyre encourages a focus on free cash flow, balance sheets, sustainability of a business model, and how to critically analyze markets and companies.
“As the analyst enters the portfolio manager ranks,” McIntyre told WP, “it is helping to guide them to appropriate ways to re-risking portfolios and de-risking portfolios, putting capital to work and taking capital out of the market.”
When the market downturn hit on Monday, Aug. 24, portfolios that were in a cash rich position were able to weather the storm.
“We had identified months ago that there was extreme stress in emerging markets on the back of a very rapid move in the U.S. dollar, from August of last year to March of this year it was up over 20% against the basket of currency, and a lot of emerging market debt is in U.S. dollar firms,” says McIntyre. “We were expecting some form of a pullback.”
McIntyre told WP that the recent situation was analogous to a similar downturn in 1998.
“You had another Asian crisis but without the credit risks that ultimately led to the failure of long-term capital management,” he says. “Today we’re seeing a modified version of that type of market activity.”