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Fighting the bear: Tellsons reveals how to combat bear markets

News Team, 24/05/2022

Cranley Macfarlane, fund manager at Tellsons

In the US, the Nasdaq index is currently in a bear market, down 27 percent from its high of 16057.44 in December 2021. The S&P500 index is also down 18 percent, meaning it also looks close to entering a bear market.

When applied to the stock market, a ‘bear’ market is one that has fallen at least 20 percent from its recent high.

Sustained economic growth can end a bear market. Central banks have ended them previously with looser monetary policies, interest rate cuts, and the injection of liquidity into the market via quantitative easing.

However, with inflation is currently running higher than the US Federal Reserve’s two percent target, it is unlikely to take any action that will alter its attempt to meet this target .

Inflation appears to be peaking at 8.3 percent in the US, which means that it should begin to fall soon, Tellsons believes. However, how quickly it meets the Fed’s target is critical to the end of the bear market.

Co-fund manager on the EF Tellsons Endeavour Fund, Cranley Macfarlane, detailed how he is combatting these periods.

“We have shifted our equity allocation in the Endeavour Fund away from pro-cyclical stocks towards higher-quality, more stable defensive stocks.

“Beyond equities, the repricing of the bond market this year means that yields close to 4 percent are at a level where our bond holdings offer attractive returns and much needed diversification to falling equity markets. Safe haven currency exposure can also be highly effective at protecting investments from the worst of market stress.

“Perhaps above all, being active is a great advantage over passive during these periods as we can select companies that will relatively outperform in a slowing economy.

“We can be overweight defensive sectors, such as healthcare and consumer staples, while being underweight technology stocks and the more discretionary drivers of consumer demand.”

Mr Macfarlane shared his view on the effect of inflation on the markets last month.

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