The Equity Market Is Leaking Oil: Asset Manager
With U.S. stocks extending losses on Monday, one asset manager says the stock market is like a car that is leaking oil, adding that the lack of strong policy action by politicians in Europe is likely to lead to more volatility and further declines in U.S. equities this year.
“The equity market is kind of leaking oil and (Treasurys) are kind of creeping up. I think that’s going to continue,” Tom Yorke, Managing Director, Oceanic Capital Management told CNBC Asia’s “Squawk Box” on Tuesday. “The politicians have really come out with a lot of noise, but not anything substantive in terms of action.”
Stock markets around the world dropped on Monday as investor hopes for a solution from this week’s European Union summit faded. On Tuesday morning, Asian equities opened lower, with the Nikkei 225 dropping 0.7 percent.
"I just see this volatility continuing to go up," Yorke said. "It just doesn’t seem like there’s any rhyme or reason for a lot of the moves we see out there.”
Investors are increasingly moving in and out of stocks, rather than following a buy and hold strategy, leading to the market volatility, according to U.S. analyst Alan Newman. Analysts blame the market's moves on high-frequency trading and the disappearance of the individual investor.
Yorke said the firm invested clients' money in a broad basket of non-correlated assets, such as domestic equities and bonds, as well as precious metals and emerging markets in order to reduce volatility in portfolios. He pointed out the occurrence of ‘Black Swan’ or extremely rare events had increased making it important for investors to have a defensive component in their asset allocation.
According to him, the firm had an allocation of around 15 to 20 percent of cash in its conservative portfolios and 5 percent or less cash in its aggressive portfolios.
“If you’re not losing $100 every day, you don’t need to make $200 the next day,” Yorke said.