28 March - 3 April 2001
Fidelity recommends taking long term view during periods of market volatility
Timing the market not advised
As stock markets around the world show signs of increased volatility in the face of economic uncertainty, Fidelity Investments represented in Malta by Growth Investments, part of the world's largest independent fund management organisation, reminds investors that the best way to ride out stock market volatility is to invest for the long term.
The main driver of the current decline in markets is the fall in technology and telecommunications stocks. A number of companies in these sectors have announced that profit results are or will be worse than expected. In the US, the technology rich Nasdaq index fell 62 per cent from its all time high.
In this environment 'old economy' stocks have held up relatively well. The UK market has less exposure to technology stocks and consequently, the FTSE 100 index has declined by 17 per cent from its all time high.
Paul Kafka, Executive Director, Fidelity Investments explains, "We always encourage investors not to panic or to sell out during periods of stock market volatility. We believe it is much more effective for investors to take a long term view and stay fully invested rather than trying to time the market. The best and the worst days in the market often come close together, making it very difficult to predict the market on a daily basis."
Fidelity's experience demonstrates that investors are unwise to try and time the market. In a volatile market it is tempting to try to avoid periods of volatility by selling out of the market and buying back at a later and more settled stage. Our research into market timing shows that equity market returns tend to be concentrated in a relatively small number of strong trading days. Moreover, some of the strongest rises tend to come immediately following sharp market declines, a time when many market timers may still be out of the market.
For example, an investor who tried to time an investment in the US market and missed the best 40 days (just three to four days a year) from the end of 1987 to the end of 2000 would have reduced their returns to 6.0 per cent from 16.7 per cent. Fidelity believes that the risk of missing these days is simply too great for long term investors and that it is almost impossible to predict the market on a day-to-day basis (a copy of the research is attached).*
Fidelity has a wide range of funds, appropriate for differing investment needs, and monthly payment and phasing options, which can help reduce the effect of volatility on an investor's portfolio.
Fidelity International Limited, which trades under the name Fidelity Investments, serves the major markets of the world by providing investment products and services to individuals and institutional investors outside the US. Together with Fidelity Management and Research Co of Boston, USA, Fidelity is the largest independent fund management organisation in the world, with US$1,013.7 billion of assets under management.**
* All figures show annualised total returns from 31 December 1987 to 31 December 2000 and are based on the FT - All Share
** Assets as at 31/12/00 include those of FMR Corp, a US company and affiliate and it's subsidiaries.
For further information on the full range of Fidelity Funds, kindly can be contacted Growth Investments on Freephone number 0800772217.