The term “a rising tide lifts all boats” is especially true in the investment management industry. After years of smooth, steady returns in nearly every asset class, the markets are finally beginning to exhibit some volatility. Although this may be bad for an investor with a decades-long investment horizon, for those who try to add value through strategic asset allocation, investments have suddenly become a lot more interesting.
Indeed, the markets are rife with areas of opportunity. Corporate credit markets are reeling, as are real estate investment trusts. The time will come when these securities will once more offer significant value to investors, similar to when credit spreads bottomed in October 2002, and owners of high yield bonds were rewarded with huge gains.
Dislocations aren’t limited to the debt markets. The return differential between growth and value stocks is at a multi-year high. Similarly, large-cap stocks are finally showing some strength versus their smaller brethren.