Fund pickers: How to outride the ‘September swoon’


Following increased concern over potential market volatility in September, fund pickers are confident long term investment positions will outride this period – but point out defensive options for investors.

This week BlackRock chief investment strategist Russ Koesterich warned that investors should consider taking a more defensive stance in preparation for volatility next month.

Koesterich’s concerns include the Federal Reserve’s September meeting, federal elections in Germany and a general historical trend that September succumbs to a “September swoon” phenomenon with stocks typically performing worst on the Dow Jones index.

Hargreaves Lansdown senior investment manager Adrian Lowcock sees buying opportunities for investors but recognises possible threats to the current calm in markets.

Lowcock says: “There is an awful lot priced into the US economic market so it may only take a little shock to knock confidence. Whether it will be in September or another month, that is debatable. 

“The German elections might increase volatility in the short term and put the attention back on Europe. People put Europe to one side and for a while we enjoyed the fact there were no problems there.”

In terms of funds for the investors who wants to position themselves defensively, Lowcock points to the £8.2bn Newton Real Return fund managed by James Harries and Iain Stewart. Lowcock adds: “They have been quite negative on quantitative easing in the US. They are positioned for a weaker US recovery and they are quite contrarian on where bond yields will go.”

Chelsea Financial Services managing director Darius McDermott says: “There are a number of issues we need to be watchful of but it depends on the timeframe of the investor.”

“If you do want to become defensive, absolute return funds ought to be able to ride out substantial market falls.”

Though not a defensive manager, McDermott does recognise Legal & General fund manager Richard Hodges, who manages £1.7bn L&G Dynamic Bond fund, as a manager who can manage volatility well. 

McDermott says: “He certainly is cautious. When he sees bonds trading at the end of their range, he buys protection on it.”

Charles Stanley Direct head of investment research Ben Yearsley disagrees that every period of volatility needs to be legislated for, he says: “When you are investing you cannot chop and change. I look at things in the long term. 

“But if you do want to be defensive then you could go into gilts and government bonds – that have still been quite volatile but they are defensive in nature. I am a believer in cash, and that you need to have it in your portfolio. It also gives you the ability to buy other assets.”