Negotiating a VUCA World

Once again, the financial markets are in turmoil. The impact of the pandemic, the tightening of monetary policy and the situation in Ukraine are all fuelling already elevated inflation and supply chain issues, contributing to levels of market uncertainty that we’ve not experienced in recent times… Or have we?

It's a VUCA World

“Turmoil in the markets is certainly not a new phenomenon – though it may seem like that, given what we’ve experienced over the past decade or so, with moderate economic growth, low inflation and low interest rates,” says Greg. “However, when we look back, we can chart a constant course of market turbulence – from the Mexican crisis in 1994/95, the dot-com boom and bust of 1999/2000, the Iraq war in 2003, to the global financial crisis of 2007/08. If there’s one thing we can be sure of, it’s that we’ve seen these levels of elevated market instability before and we will, without doubt, see them again.” Tim adds: “When trying to make sense of the current macro events and understanding the impact from an investment perspective, it’s useful to look at it through the lens of the VUCA principle.” VUCA describes a situation, event or environment that is Volatile, Uncertain, Complex and Ambiguous - four distinct challenges present simultaneously, the effect of which can seem overwhelming, often causing disruption and confusion.

Implication for Financial Markets

“There is certainly correlation between today’s VUCA environment and what we are seeing in the dislocation of financial markets,” says Greg. “There is volatility. The values of certain investments are fluctuating in response to macro-economic influences. The Nasdaq has fallen about 20% year to date, as investors have reduced excessive exposure to growth stocks in order to correct underweight positioning in value stocks. “There is uncertainty – in terms of what’s going to happen next and how it will impact the geopolitical landscape. “We are seeing complexity, with de-globalisation and technology having positive and negative impacts. We are also witnessing ambiguity – conflicting views, analysis paralysis and emotional investing, which can lead to panic buying and selling by some market participants.”

Guidance in Turbulent Times

So how does TMGA respond to all this? “The simple answer is, we embrace market volatility and look for suitable opportunities, as sectors reprice relative to one another,” says Tim. Each Senior Investment Director at TMGA has extensive experience in the investment management industry and, having lived through several of the financial crises of recent years, accept volatility, uncertainty, complexity and ambiguity in the markets as the norm. “Instead of trying to manage elements outside our control, we harness our collective knowledge and experience, adopting a ‘keep calm and carry on’ attitude,” says Greg. “We have confidence in our philosophy – it’s based on patience with a disciplined investment approach. Our objective is clear: to deliver positive, risk-adjusted returns that meet our clients’ long-term financial objectives. Therefore, we don’t subscribe to short-term trends and market noise – it’s all about sustainability in the long term and investing for the future. “We are experienced long-term investment managers, analysing and evaluating the investment landscape to identify emerging trends, new business cycles and global themes – this shapes our strategic, top-down view. “We also use rigorous bottom-up research disciplines to inform and validate these views, implementing them across our core investment strategies and ensuring there is sufficient diversification and ballast, from both an asset allocation and portfolio construction perspective.” Tim adds: “The result for our clients? Exposure to different regions, themes and sectors with reduced concentration risk, liquidity and minimised portfolio volatility. We build an investment portfolio like we’d build a house – with strong foundations, a good roof and sturdy walls, so it’s in a robust position to weather storms. “Our clients understand and value our approach, as it provides reassurance in uncertain times. We develop long-term personal relationships built on trust, transparency and confidence. “Respectful of this trust, we continue to use our collective skills and combined knowledge and experience, blending it to achieve the very best outcomes for our clients, in all market situations.”