In the last month, indices appeared to deliver easy returns. On digging a little deeper, you will notice that individual portfolio performances are diverging from the headline numbers. Flows seem to be still strong and yet individual portfolios aren’t showing commensurate strength.
Investors are anxious to make faster decisions, more changes and bigger bets. Yet, those who made these in recent months are realising that equity investing is getting more challenging. Money seems to be chasing safety even within equity as an asset class. Mutual funds which had caught up and outperformed their benchmarks are now anxious to not let the performance slip. They want to somehow retain their outperformance and are trying to achieve this by moving more money into safe haven stocks.
The obsession with outperformance seems to be overdone. On the contrary, this is a market when it makes little sense to chase risks. Rather than chase performance now, managers are better off managing risks sensibly and steering clear of high-risk decisions. This definitely means waiting and sitting out of many currently fancied stocks and themes. Near-term underperformance is likely as a consequence. But, that is a far better option than chasing high-risk decisions in expensive stocks. The market seems to be mispricing risks and overpricing stocks as a result of the buying frenzy. By steering clear of such expensive stocks, investors can guardrail their portfolios from swift price corrections and sharp drawdowns.
When markets are correct, investors who went to safety early will be better placed to participate better in undervalued stocks from attractive themes. Preparing now will ensure the investor buys actively when the tide turns in his favour and the time to buy arrives.