Welcome Back Volatility, We’ve Missed You!

Last month, in our blog New Client Assets in Today’s Market: A Blessing or a Curse?, we discussed the difficulty advisors have in today’s market deciding where to invest new client capital. The influx of market volatility over the past 3 months has certainly not helped answer that question. But is market volatility all that evil? There have been many articles and industry experts that have opined on the topic.

Many insist that market volatility is not a bad thing, often evoking investment clichés like: “buy low; sell high”, “buy the dips” and “market corrections just mean stocks are ‘on sale’”. These all-too-often-used phrases, meant to calm investors and provide perspective, ultimately do little to alleviate the fear investors have when volatility strikes. This is primarily because they are more subjective, “gut feelings” and not based upon data or facts. And therein lies the rub, as they say.

Welcome to the Party!

Over the course of 2017 the S&P 500 Index had only 9 days of price movements (up or down) that were greater than 1%. Through only one-third of this year, we have already had 30.

For an additional point of reference on current levels of volatility, we’ve compared current volatility levels in the S&P 500 Total Return Index to one year prior.

1Source: FactSet. 3-Mo daily Standard Deviation for the S&P 500 Total Return Index.

Compared to last year, 2018 is experiencing a substantial increase in volatility month over month.

Volatility is often viewed as a negative and a signal to run for the exits. Many investors associate the term with losing money and speak of it as if it were a big bad monster. But as anyone who has seen the movie Monsters, Inc. knows, not all monsters are bad. In broad based volatility lies the potential for profit. We understand that volatility is part of investing and will always exist.

Making Volatility Work for You

With that said, market volatility is not the sole instrument we use to quantify risk, but it sure is helpful. Increased volatility can elicit a fear-based response from market participants making it is easy to see how emotion can slip into the decision-making process. When markets begin to buck the trend and change direction, we believe it is best to have a disciplined and repeatable process to help direct decision making. From our experience, we’ve seen that emotions and investing compare better to oil and water – they don’t mix.

Our quantitative approach to investing embraces market volatility. We can use it to identify opportunities and minute differences between individual markets. Volatility for Global Wealth Strategy (GWS) is the equivalent of spinach to Popeye. By creating clearer differences between asset segments, it gives us further ability to quantify risk and reallocate capital to assets with a more desirable risk profile. It is our emotionless approach that allows us to be extremely effective in these environments. Where other investors see fear, we see opportunity.

Managing client money during times of increased volatility can lead to long days and nights littered with difficult and emotional client conversations.
That said, when viewed through the right lens, market volatility can be seen as a positive – as long as you know where to look and have the flexibility to adapt when market conditions change.

GWS is designed to provide this flexibility and, thus, a counterbalance to your clients’ overall asset allocations. We are here to help you shorten those long days and nights by avoiding emotional, difficult conversations. This allows for discussions containing more than just common clichés.


THIS DOCUMENT HAS BEEN PREPARED BY PARITAS CAPITAL MANAGEMENT, LLC (“PARITAS”) SOLELY FOR THE PURPOSES OF PROVIDING SUMMARY INFORMATION REGARDING PARITAS AND ITS GLOBAL WEALTH STRATEGY (“GWS”) COMPOSITE. THE INFORMATION CONTAINED HEREIN IS NOT, AND SHOULD NOT BE CONSTRUED, AS AN OFFER OR SOLICITATION OF AN OFFER TO BUY ANY FINANCIAL INSTRUMENT. AN INVESTMENT IN ACCORDANCE WITH THE GWS COMPOSITE DESCRIBED HEREIN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”), ANY STATE SECURITIES COMMISSION, OR OTHER ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OR THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND A CRIMINAL OFFENSE.

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THE BENCHMARK INDEX REFERRED TO HEREIN IS A BLEND OF 60% MSCI ACWI INDEX AND 40% BARCLAYS US AGGREGATE BOND INDEX. THE INDICES INCLUDED TO SHOW RELATIVE MARKET PERFORMANCE FOR THE PERIODS INDICATED ARE NOT NECESSARILY STANDARDS OF COMPARISON, SINCE INDICES ARE UNMANAGED, BROADLY BASED AND DIFFER IN NUMEROUS RESPECTS FROM THE GWS COMPOSITE. MARKET INDEX INFORMATION WAS COMPILED FROM SOURCES THAT PARITAS BELIEVES TO BE RELIABLE. HOWEVER, PARITAS DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH DATA.

AN INVESTMENT IN ACCORDANCE WITH THE GWS COMPOSITE MAY NOT BE SUITABLE FOR ALL INVESTORS. THIS MATERIAL HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT INTENDED TO PROVIDE, AND SHOULD NOT BE RELIED ON FOR, INVESTMENT, ACCOUNTING, LEGAL OR TAX ADVICE.

INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL OF LOSS OF SOME OR ALL PRINCIPAL INVESTED. INTERESTED PARTIES ARE ENCOURAGED TO REVIEW PARITAS’ FORM ADV PART 2, AS WELL AS PERTINENT PROSPECTUS/PRODUCT DESCRIPTIONS TO CONSIDER SUCH RISK PRIOR TO INVESTING. THERE IS NO GUARANTEE THAT A DIVERSIFIED PORTFOLIO WILL ENHANCE OVERALL RETURNS OR OUTPERFORM A NON-DIVERSIFIED PORTFOLIO. DIVERSIFICATION DOES NOT PROTECT AGAINST MARKET RISK. STOCK INVESTING INVOLVES RISK INCLUDING LOSS OF PRINCIPAL. PAST PERFORMANCE IS NO GUARANTEE OR PROMISE OF FUTURE SUCCESS.

THE SHARES OF EXCHANGE-TRADED FUNDS (“ETFS”) MAY TRADE AT PRICES AT, BELOW, OR ABOVE THEIR MOST RECENT NET ASSET VALUE. EQUITY SECURITIES WILL FLUCTUATE IN PRICE; THE VALUE OF INVESTMENTS IN ACCORDANCE WITH THE GWS COMPOSITE WILL THUS FLUCTUATE, AND THIS MAY RESULT IN A LOSS. SECURITIES IN CERTAIN FOREIGN COUNTRIES MAY BE LESS LIQUID, MORE VOLATILE, AND LESS SUBJECT TO GOVERNMENTAL SUPERVISION THAN IN THE UNITED STATES. THE VALUES OF THESE SECURITIES MAY BE AFFECTED BY CHANGES IN CURRENCY RATES, APPLICATION OF A COUNTRY’S SPECIFIC TAX LAWS, CHANGES IN GOVERNMENT ADMINISTRATION, AND ECONOMIC AND MONETARY POLICY. EMERGING MARKET SECURITIES CARRY SPECIAL RISKS, SUCH AS LESS DEVELOPED OR LESS EFFICIENT TRADING MARKETS, A LACK OF COMPANY INFORMATION, AND DIFFERING AUDITING AND LEGAL STANDARDS.

AN INVESTMENT IN BONDS CARRIES RISK. IF INTEREST RATES RISE, BOND PRICES USUALLY DECLINE. THE LONGER A BOND’S MATURITY, THE GREATER THE IMPACT A CHANGE IN INTEREST RATES CAN HAVE ON ITS PRICE. SELLING A BOND BEFORE IT REACHES ITS MATURITY MAY RESULT IN A LOSS UPON ITS SALE. BONDS ALSO CARRY THE RISK OF DEFAULT, WHICH IS THE RISK THAT THE ISSUER IS UNABLE TO MAKE FURTHER INCOME AND PRINCIPAL PAYMENTS. OTHER RISKS, INCLUDING INFLATION RISK, CALL RISK, AND PRE-PAYMENT RISK, ALSO APPLY. HIGH YIELD SECURITIES (ALSO REFERRED TO AS “JUNK BONDS”) INHERENTLY HAVE A HIGHER DEGREE OF MARKET RISK, DEFAULT RISK, AND CREDIT RISK.

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About the author: Michael Pakula

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