Defend Against Downgrade With Dividends
BOSTON (TheStreet) -- Oliver Pursche, manager of the $20 million GMG Defensive Beta Fund (MPDAX), said one of this largest clients phoned him late Thursday concerned about the sharp selloff in equities. Like most individual investors who were lost and blindsided by the bleeding, Pursche's client was looking for direction.
"He was very nervous. He wasn't quite freaking out, but he said 'Oliver, this is one of the times I need you to tell me everything is OK,'" Pursche said by phone Friday from his office in Suffern, N.Y.
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In the time since that broad drop in stocks Thursday, uncertainty about the future has been ramped up following the decision by Standard & Poor's late Friday to strip the U.S. of its prestigious triple-A rating. With little indication about how global markets will react to the downgrade of U.S. debt, investors are left without answers on how to navigate the storm.
Pursche, though, manages to volatility and risk, not return. Volatility had been increasing heading into May, so he raised cash and increased his firm's exposure to short-term bonds. While many prognosticators and commentators are split about whether equities are a screaming buy or whether this is the beginning of Armageddon, Pursche told his client that the best course of action is to remain calm."History has shown time and time again that investors who allow their emotions to get the best of them tend to dramatically underperform the markets and fellow investors who have the fortitude to stick with their plan," he says. "Our advice and actions aren't about catching a falling knife. We're comfortable about our allocation." Some investors are worried that the market will experience a crash like the one that occurred after the collapse of Lehman Brothers in 2008. Last week, the Dow Jones Industrial Average had its biggest loss since those dark times, so investors are rightfully worried. Pursche, though, argues that conditions are much different than they were three years ago. "The market crash of 2008 and early 2009 was caused by a combination of excessive leverage, in particular in the financial markets, and a lack of liquidity," he says. "By contrast, today, banks and other institutions have decreased leverage -- in some cases as a result of being forced by new regulations -- and governments around the world have stepped in and continue to provide enormous amounts of liquidity. Structurally and fundamentally that is a very different environment than three years ago."
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