Volatility Of The Equity Market

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Today, commentary contained in the latest publication (Cognito 3Q) from the SIM Unconstrained Capital Partners Team on the current volatility of the equity market. With emotions running high and the huge uncertainty in global equity markets the Team discusses why this is unlikely to be a repeat of 2008 and their thoughts on the impact that range-bound markets could have on equity returns.

Matt Brenzel of Cadiz Asset Management in his September Quarterly Commentary provides interesting insights into the performance numbers of the last quarter and what is required to reduce equity market volatility.

In “Cognito 3Q 2011”, the article “Are we doomed by range-bound markets?” explores the different periods that make up a stock market cycle and interestingly noting that we tend to spend more time in range-bound markets than we do in bull or bear markets. The news is not all bad, and the SIM Unconstrained Capital Team identifies how they apply their investment approach to maximising the different sources of return that come from investing in equities.

They also do believe that we are likely to remain in a below-trend growth environment for longer than we would like. In this period, and especially following a balance sheet financial crisis, companies with above-average growth are few and far between. The Team’s investment approach is focused on looking for companies whose share prices do not reflect their future profit potential. This could either be because the company has been negatively impacted by the economic cycle and will return to normal profits as the business cycle improves or the business has a sustainable competitive advantage that should translate into growing demand for their products at good returns for shareholders.

Investors may access the SIM Unconstrained Capital process through the SIM Value Fund or by reading the latest SIM Value factsheet.

On that note, we would like to wish all our clients a prosperous and productive week ahead!

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