How should investors react when years of steady market gains and relative calm give way to volatility?
At T. Rowe Price, we reinforce that while our clients cannot control market fluctuations, they can control their reaction to them—and that includes being mindful of their long-term investment priorities.
The reason is simple: While market turbulence is normal, it also provides opportunities to uncover attractive investment ideas at reasonable prices.
"When markets become turbulent, we stay intently focused," says Eric Veiel, head of U.S. Equity. "We work to parse out what's truly changed and, equally as important, what has not. Our analysts assess whether or not the factors driving volatility have altered the fundamentals of the companies in our portfolios. At face value, an event such as China allowing its currency to moderately devalue should not fundamentally change the way we view most U.S. companies in which we invest."
In fact, the firm often uses market corrections such as last summer's to add to existing high-confidence holdings and reconsider well-positioned, high-quality companies that were previously considered too expensive.
Similarly, when volatility resurfaced in credit markets, primarily as a result of market reaction to the prospect of a Federal Reserve interest rate hike, our fixed income managers looked for attractively priced opportunities among U.S. and global credit markets.
"Investors will have choices—they can wait for markets to settle or they can embrace the opportunities volatility creates," says Ted Wiese, head of Fixed Income. "Valuations certainly became more attractive last year as investors repriced risk, so being more selective and taking a global approach to diversification became even more important. We rely on our independent credit research and quantitative analysis to identify sectors that are likely to deliver better returns as well as those likely to underperform."
"One of the underlying strengths of our collaborative culture is the ability to leverage collective insights across the whole of the investment organization," says Sebastien Page, co-head of Asset Allocation. "That open and ready access in turn enables needed adjustments and better performance for our clients."
Encouraging a Balanced Viewpoint
To help our clients maintain a long-term view and avoid reflex selling, our client-facing associates and client communications stress the importance of investing fundamentals and seek to offer a balanced perspective on the market environment. The transparency of the information we provide is the first line of defense for our clients, particularly when market volatility causes concern.
We provide guidance to clients through digital, social media, and print communications, as well as through individual discussions. Those discussions urge clients not to make investment decisions based on daily headlines, but instead focus on what they can control—including having a financial plan, diversifying, and adopting a long-term time horizon.
We also help advisors by providing them with timely communications that they can use in interactions with their own clients. "We know that advisors respect our unique investment insights and share them with their clients," says John Halaby, head of the Financial Advisor segment in the U.S. Investment Services division. "Helping advisors communicate more effectively with their clients, particularly during difficult market environments, enhances advisors' perception of our value and contributes to the success of both relationships. That's a win-win proposition."
Emerging Markets Value Stock Fund
Global Unconstrained Bond Fund
Global High Income Bond Fund
Global Investment Grade Corporate Bond Fund
An Expanding Suite of Investment Products and Solutions
No matter the market, our equity, fixed income, and asset allocation teams constantly build on the foundation of existing investment solutions to meet emerging client needs.
In 2015, the firm introduced a variety of new investment products and solutions, offering a broad array of options across investment sectors.
Remaining Focused on our Clients
Finally, the strength of our balance sheet enables us to move opportunistically and nimbly on behalf of our stockholders and make strategic investments to enhance our capabilities and reach. Our associates keep their attention focused on our clients and achieving their financial goals.