The Stealth Bear Market (and why that feels so bad)

Things don’t look too bad. So why does it feel like they are?

It’s taken me several attempts to write this letter, because I’ve been trying to work out what the hell is bugging us all. Your clients are getting antsy, which is making you antsy, which is making us antsy. That’s too much antsyness. And it’s not immediately obvious why there should be any antsyness, let alone a chronic case of it. What gives?

The good news? I’ve worked out what the problem is. The bad news? This won’t make it go away. But it might just make it easier to bear.

So, what is it?

When it comes to health, one thing that’s worse than having an illness is having an undiagnosed illness. You get all the same problems, but without the satisfaction of knowing what’s causing it and, therefore, being officially able to classify yourself as sick. It also makes it hard to know how long it might last, and how you can treat it. It’s all very pernicious.

Well, it turns out the financial equivalent is nasty too. And that’s exactly what I think this is: We’re trying to muddle through an undiagnosed bear market.

The classic definition of a bear market is “a period in which the prices of financial securities fall by 20% or more”. This can be any type of asset, but because equities are the headline-hogging superstars of the financial world, a bear market won’t be widely declared until at least one of the major stock market indices has tripped through that barrier.

There are a number of problems with this, but they all amount to the same thing: Unless your financial ailment meets that very narrow definition, you’ll be diagnosed with nothing more than a “buck your ideas up”, leaving you feeling you’re making a fuss about nothing.

Well, let me put you out of your misery: You do have a problem, and you’re right to feel bad about it. You – and your clients - have been living under what amounts to a bear market for two and a half years. No wonder there’s no lead in your pencil. Let’s run through my diagnosis.

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Written by Simon Evan-Cook, Fund Manager, VT Downing Fox Funds

If you'd like to subscribe to receive updates from Simon email downingfundmanagers@downing.co.uk

Footnotes

_{[1] For the record, not all multi-asset portfolio managers lost their clients money in last year’s Bondmageddon. A handful completely avoided long-duration bonds and did just fine…}

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