Investors still see markets as one-directional bet, says Kames’ global income managers

Volatility recently falling to a 23-year low shows investors still see markets as a one-directional bet, according to Mark Peden and Douglas Scott, co-managers of the $524m* Kames Global Equity Income Fund.
The CBOE Volatility Index (VIX), Wall Street’s ‘fear gauge’, dropped to 9.37 on Friday 9 June, its lowest since December 1993, despite Theresa’s May Conservative Party government losing its majority in a snap general election held on 8 June 2017.
While the VIX has since risen slightly, volatility remains historically weak having failed to react to major events and mounting concerns over growth.
“Volatility falling to a 23-year low underscores the continued one-directional bet in markets and the correlation between markets,” says Peden. “Indeed, markets appeared to have even shrugged off concerns including a coordinated global cyber-attack, further missile testing by North Korea, a terrorist attack in Manchester and the recurring spectre of Greek debt default.”
While US domestic politics caused some short-lived volatility last month, Scott says Macron’s convincing victory in the final round of the French presidential election has helped to reassure markets, along with a positive earnings reporting season, particularly in the US and Europe.
More broadly, while the pair typically keep turnover low to fully benefit from the compounding effect of reinvested dividend income, they have recently added Australian building materials expert Boral Limited to their portfolio. “Boral has just received anti-trust approval for its highly accretive acquisition of US fly ash manufacturer Headwaters that leaves it extremely well positioned to benefit from any new governmental infrastructure programmes as well as being able to grow the dividend strongly into the future,” says Scott.