Market swings can lead to emotional decision-making

A managed volatility approach can help

In October, the stock market experienced its worst three-day loss since 2011. When markets become this volatile, even clients who check the ‘high tolerance’ box on their risk profiling questionnaire will find it hard not to react. Fear often clouds decision making and leaves investors feeling exhausted. This makes it hard for your clients to follow your advice.

Managed Volatility Funds are Designed Exactly for Times like These.

Managed volatility funds have a goal of producing equity-like returns, but with less risk than the overall market. They differ from traditional mutual funds in that they invest in more stable areas of the stock market and avoid areas with greater price fluctuations. While traditional mutual funds are largely constrained by the sector weights of their benchmarks, managed volatility funds have the flexibility to focus on calmer waters. This kind of flexibility can have a significant impact on performance over time.

Keeping the Focus on the Larger Picture

For your clients, investing in a managed volatility fund can be a proactive step that helps them feel better prepared for market swings. As most advisors know, the damage incurred by selling at the wrong time can be very difficult to recoup. The greater the loss, the greater the magnitude of the gain required just to break even.

Clearly, the stakes of keeping your clients from selling during market downturns are high. By discussing volatility ahead of time and choosing an investment strategy that helps mitigate that risk, you can help your clients stay focused on the larger picture of their financial goals when markets become turbulent.

Why Managed Volatility Now?

In addition to the recent spike in volatility, more favorable valuations in relatively stable areas of the market have improved the climate for managed volatility. Managed volatility funds are designed to protect against falling stock prices, but are also likely to participate less in market upturns. For this reason, they’re better suited to investors with longer time horizons who can stay with the strategy over the course of a full market cycle. Managed volatility funds can be considered on their own, or as part of a well-diversified portfolio that includes traditional mutual funds and other investments.

Find out more about the Managed Volatility approach from SEI. Get the paper TONING DOWN PORTFOLIO FLUCTUATIONS – The benefits and risks of a managed volatility strategy at seic.com/managedvolatility or call 888-734-2679.

Information provided by SEI Investments Distribution Corporation (SIDCO), a wholly owned subsidiary of SEI Investments Company.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well.

Diversification may not protect against market risk. There is no assurance the goals of the strategies discussed will be met.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only.