How can clients get back into the market after panic selling?

Manulife senior portfolio manager on why investors bail out and the benefits of a multi-asset allocation strategy

How can clients get back into the market after panic selling?

As sure as the pope is Catholic and Celine Dion is Canadian, investors will panic sell when markets plummet. For many, they do so at the most inopportune time and are left in a tricky situation when trying to get back in.

Jamie Robertson, Senior Portfolio Manager and Head of Asset Allocation Canada & Global Head of Tactical Allocation at Manulife Investment Management, believes this common mistake is usually the result of people losing sight of what their real time horizon is. Even a 55-year-old, for example, has much longer than he or she appreciates.

“All of a sudden, when people see some adversity, instead of identifying it as an opportunity to do whatever they can to increase their investment in the market and do a little bit of dollar-cost averaging, they become despondent and exit, very often, at the least attractive time.”

What happens if, a month or two later, you have a client sitting there full of seller’s regret, with markets buoyant? Robertson said multi-asset solutions offer a number of characteristics that can ease the trauma of that first step back in. Top of the list is that they have a tendency to go down less than the market, which is good during a downturn and also means your recovery is faster.

“An investor who realizes now that they are under-invested in the market should, in a very systematic and disciplined way, be getting back in and having it reinforced that they have an extraordinarily long time horizon. And when you run into periods of weakness, you should view that as being an opportunity to do dollar-cost averaging or to get in at a better level.”

Of course, Manulife is not the only offering in town. But Robertson said the expertise and performance that the firm offers stands it apart from many of its competitors. His multi-asset portfolios are actively managed by a team of more than 35 investment professionals, who have been in this business for more than 25 years. Its “robust, time-tested, cycle-tested process” offers a compelling choice, he added, highlighting that 80% of the portfolios are made up of Manulife’s best-performing, most-respected investment professionals.

He explained that these are portfolios also managed with the view of generating excess returns and have a 10% portion in strategic beta portfolios, managed by Dimensional Fund Advisors, which is one of the foremost leaders in its field in the United States. “These are portfolios that go one step beyond index investing, because they tilt the portfolios towards the cheaper companies, more profitable companies and smaller companies. That's another source of how these portfolios may be able to outperform the market.”

Another 10% of the portfolio is viewed from the lens of a slightly shorter time horizon than the rest, looking ahead five years. This allocation uses very low-cost ETFs and will either be more defensive when risk is overwhelming return or targeting an asset class that Manulife believes will perform very well within that time horizon. This sleeve has recently taken advantage of the rise of precious metals, for example.

Robertson said: “It’s an asset class which over the long run generally performs in line with overall equity markets. But they also have tremendous diversification benefits, particularly when you go through a period of time when you've got market turbulence, like we saw in March, or when we have a period when central banks are being extraordinarily accommodative, and potentially also trying to reduce the value of their currencies in the world market as global trade may slow down.

“That's a great example of an asset class that we can identify, put into the portfolios and has the ability to generate additional return. Precious metals have been the best-performing asset class over the past year or so. Not only are they very interesting from an absolute return perspective but they also offer great diversification benefits.”

For advisors, the multi-asset allocation model is an opportunity to outsource aspects of their business model. A well-established team can take care of asset allocation and rebalancing portfolios, giving them a chance to focus more on client engagement. Robertson believes that from a compliance and operational standpoint, it’s an elegant one-ticket solution.

He said: “It allows the advisor to have confidence that their clients are invested in an instrument that will be able to generate the types of returns that they require to achieve their objectives, while at the same time allowing them to focus their time and energy on dealing with servicing clients, and running their business in a more efficient manner.

“It's a very symbiotic relationship between a solution like the Manulife asset-allocation solutions, and what an advisor is trying to do to add value.”