Brian Singer, partner and co-portfolio manager of the William Blair Macro Allocation Fund, discussed his views on the market recently on “The Big Interview,” a MoneyLife podcast with MarketWatch funds columnist Chuck Jaffe.
Jaffe began the interview by saying he is confounded by the current market environment. He points out that while investors are saying they’re worried, that is not how they are investing, and the market continues to climb. When Jaffe asked Singer if he believes this can continue indefinitely, Singer said he thinks the current market environment could last a little while and compared it to an avalanche.
“If you imagine snow falling on a mountain and it falls and falls and falls, it’s very calm and very serene, up until that point where there’s enough piled up that you get an avalanche,” said Singer. “But the whole build up to that can last quite a long time, and that may be what we’re going through now.”
When asked what could trigger such an avalanche, Singer explained that there are various market structure issues. As one example, he cited China devaluing the yuan in August 2015. While just a 2% devaluation, it had an immense impact on markets worldwide and sparked a huge sell-off.
Jaffe then discussed how the stock market is currently giving one message while the bond market is giving another, and asked Singer which message he believes more. “I would believe first the stock message, but I wouldn’t believe it much more than the bond message by any stretch of the imagination,” Singer said, adding, “and generally speaking, I don’t believe either message very much and the reason is central banks.”
Singer explained that when central banks intervene and manipulate interest rates, what they are in turn doing is controlling asset prices. That activity has helped push risky asset prices up while keeping volatility down. “They’re the primary culprit I point to in all this,” he said.
The interview then turned to the topic of domestic versus international markets, and Singer shared that his team is currently leaning away from the domestic market and finding attractive opportunities in Europe and Southeast Asia. When asked if the average investor should try to follow the same investing strategy, Singer said, “I think the best advice is to have a broad strategic asset allocation. One that is very stable over time and then mildly tilt away from that in the direction that, generally speaking, we tend to talk.” He added, “The key is to not drift too far from the strategic allocation because that’s the one that gets you to retirement.”
Jaffe then highlighted a recent blog post from Singer, “Smooth Seas Do Not Make Skillful Sailors,” and asked if Singer thinks smooth seas (i.e., low volatility) are fooling investors. “I think it does fool investors,” Singer said. He explained that when volatility is low, people perceive less risk than truly exists in the market, and that can lead them to take on risk for which they are not adequately compensated.
“It feels as if they are not taking more risk because it’s just not volatile,” Singer said. “I don’t believe we’re that far yet in this market, but I do believe there are bad incentives that have been created by these very low interest rates and by low volatility in the markets, and it just leads people to take risks that they are not aware of in risky places.”
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