Personal Wealth Management / Market Volatility

Fisher Investments' Founder Ken Fisher Explains How to Position Your Portfolio for a Rebound

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses portfolio positioning coming out of a market correction. Ken believes the downward volatility stocks have experienced this year is characteristic of an elongated correction, not an extended bear market. Ken has an idea on how to take advantage of this. He talks about investing in categories that generally underperform through a downturn because in corrections, or at the end of a bear markets, they tend to bounce most when the market rebounds.

This year, for example, Technology stocks suffered disproportionately on days when the market was down, yet outperformed on up days. According to Ken, this means Technology, and similarly, growth stocks, have the potential to outperform during the recovery. Ken also discusses reducing exposure to categories that outperformed through the downturn—such as value and defensive stocks—as they are more likely to underperform as the market recovers.

Transcript

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Title screen appears, “Fisher Investments' Founder Ken Fisher Explains How to Position Your Portfolio for a Rebound”

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A man appears on the screen wearing a navy suit, sitting in a office in front of a fireplace.

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A banner identifies him as Ken Fisher, Executive Chairmen and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: This year, more than most, people struggle with how to posture portfolio. And they're mostly, I think, getting it very wrong, looking forward. Because they're seeing the entanglement of two things that keep them from seeing the real thing. And what do I mean by that?

Ken Fisher: What I mean by that is we have a feature going on which is almost perfect. On days where the market is down fairly much, I don't mean 10, 20 basis points, but down a notch. It's the same categories regularly that are doing better and worse. On the days when the market is up a good notch, we have this reverse. The categories that are doing worse on the downside are doing better on the upside. The simplest and easiest one to see is tech, which is all year long lagged markedly on down days. 100% perfectly so, no, but the correlation there is very high.

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On the screen a twitter feed is being shown, this is ken fisher’s twitter feed. Its showing a chart of Daily growth/value performance vs Market return YTD

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Ken Fisher: On May 26, I did a visual scattergram with some data on this on my Twitter feed, and you can look that up from May 26. But the fact of the matter is, all this year the data points reinforce the simple notion, said very simply: That if the market was going up, tech would be doing better than the market. If the market was going down, tech would be doing worse. But you could extrapolate that much more broadly. The extrapolation that's more broad, and still fully valid, is when the market's going up, growth stocks are leading, when the market's going down growth stocks are lagging. The inverse is when the market's going down, value stocks, defined as cheap relative to earnings or book value or dividends or some other valuation criteria, EBITDA or whatever, value companies do better when the market's going down, they're doing worse when the market goes up.

Ken Fisher: Now here's the point that I want you to see. When you have either a standard correction or the back-end of a bear market, either one, the categories that lag the most on the downside, not 100% but close to, bounce the most in the first few months when you get to the rebound.

Ken Fisher: So right now if you listen to media, if you read so many sources, they'll tell you this is the time for value. Well, that's true if you believe the market's going to keep going down. If you believe the market's going to go up, this is exactly the time not to do value, but instead to do growth, because the categories that get pummelled the most on the downside as categories, again, not every single stock, I'm talking categories here, do the best on the upside.

Ken Fisher: My view has been that this is a correction very elongated in time and fairly steep, a lot like the 2011 correction that lasted six months, got intraday down below 20%--the official demarcation of a bear market—but couldn't close there. Played with 20% for a good long time, back and forth up to about 14, and back down to almost 20. And then boom, exploded on the upside, after the six months, right after the six month point. And the market behaved then in its aggregates like it's behaving now. And I think for a lot of the same reasons, and I may be wrong about all of that. I may be wrong, and it may not act that way moving forward, but that's what I think we are having. And in that I would expect that the parts that should lead on the way back up are growth, tech, the parts that should lag are value and the defensive stocks, all the ones that have done the very best so far year-to-date as I speak.

Ken Fisher: Thank you very much for listening to me.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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