That said, McCaughan acknowledged the market is seeing a high degree of volatility, in part due to the withdrawal of capital from equity markets, which has left stocks with few "shock absorbers."
At the same time, structural changes like the shift toward computerized high-frequency trading, the dispersion of trading venues and growth in exchange-traded funds are contributing to volatility, he said.
That means that for the time being, markets are likely to overreact to the downside, and then overreact to the upside,
In that kind of environment, McCaughan said investors should invest for the long term.
Global growth also looks like it will be slower than it did just two or three months ago, so he advised sticking to companies with U.S.-exposed stocks, particularly small- and mid-cap names.
McCaughan also cautioned investors not to desert bonds. He sees the Federal Reserve increasing interest rates two or three times this year after an initial hike in December, which could push the 10-year Treasury yield as high as 1.5 percent.
"People talked about 3, 4, 5 percent 10-year yields. Those are totally fantasy now. I think that bonds are OK, and that actually credit may be underpriced right now," he said.
"It may well be that high-yield and investment-grade credit are pretty attractive right now unless the tail risk in the U.S. economy comes through."