London Blasts: How Should Fund Investors React?

Terrorist attacks in London this morning sent global equity markets into turmoil.

While details of the tragedy continue to emerge, mutual fund investors with holdings in the U.K. and Western Europe have been left wondering how to respond. Our advice to investors is not to panic, even with investments in Europe.

Sam Stovall, chief investment strategist at Standard & Poor’s, says investors should “stay the course,” reminding them they should “let their investment decisions be driven by economic factors.”

Jean-Michel Six, chief European economist for Standard & Poor’s, commented that financial markets reacted “predictably” to the bombings.

“European stocks recorded their biggest drop in two years, while the Financial Times 100 index was down 2% at 1:30 GMT,” Six noted. Based in London, he said the longer term impact of today’s events are “difficult to assess, but past history suggests it should not be too dramatic from an economic standpoint.”

Stovall noted that shocks like the London bombings “take a toll on investors’ nerves,” as reflected by the average 3.2% one-day price decline of the S&P 500 Index following shocks such as September 11, the assassination of Kennedy, and the Cuban Missile crises. However, his research indicates that the market free-fall lasts no more than four or five days and that, on average, the S&P 500 has taken only 14 days to recover from past tragedies, excluding the Pearl Harbor bombings.

Pam Holding, co-manager of Putnam International Growth & Income Fund/A (PNGAX) said, “not wanting to trivialize this tragedy in any way, from a market perspective, we are looking at this as a buying opportunity.”