With the recent impact that events in Crimea have had on Russian and other emerging market ETFs, it's essential for fund managers to have a proactive marketing strategy.
"Fund managers must learn that geopolitical events have the potential to impact products," says Dave Mazza, head of research for SPDR ETFs and SSgA Funds. "It is imperative that fund managers have robust procedures in place to deal with extraordinary events so that shareholders will not be impacted negatively."
In 2014, there is expected to be 44 elections globally, Mazza says, indicating that the impact of both positive and negative geopolitical events may be greater this year than in year's past.
One way that fund providers can manage instances of sudden volatility, mutual fund and ETF providers say, is with proactive communication with investors. For example, fund managers can publish specific research or hold conference calls. Another way is simply being prepared for any potential inquiries that may come from clients with speaking points and relevant data on impacted funds, according to Mazza and others.
Here's what a handful of other providers and managers say about how they handle volatility and geopolitical uncertainty so that clients are not in the dark.
DON'T REACT EMOTIONALLY
"Inflammatory voices on TV, blaring headlines in newspapers and virally spreading information online create confusion and worry in the minds of investors. These investors have questions and will look for re-assurance from their financial advisor. The asset managers, ETF firms and mutual fund companies that want to standout and be recognized as a true partner to advisors will anticipate these investor questions and arm their advisors with the tools, resources and easily consumed communications to put those fears at ease. The message should be to listen to your advisor, don't react emotionally and stay the course - that is why you work with a professional advisor! As for technology, these firms should consider leveraging all communication channels in getting the message out, including webcasts, video commentary on You Tube, and utilizing social media channels such as Twitter, as well as old-fashioned email."
- Timothy Welsh, president of Nexus Strategy
"One of the keys to dealing with short-term uncertainty, and the volatility associated with that, is to communicate regularly with advisors and clients. No matter what your stance is on Russia, the rationale for your position needs to be clearly articulated to investors. Even if others disagree with your position, they will find merit in the fact that you are transparent with them, and as a result will be more confident in your assessment of the situation. Another key, from an ETF provider perspective, is to show how a particular product fits in the portfolio strategy of investors. Russia is cheap right now, but many investors don't know how cheap. Providing extra information is key in helping investors assess how to use your product in building their portfolios."
-David Garff, president and chief investment officer of Accuvest Global Advisors
"Fund managers should be ready for anything. Uncertainty surrounding Ukraine and the potential for escalation or non-escalation in the region is driving activity in ETFs tracking Russian stocks. I think savvy managers should have long ago put contingencies in place for this type of scenario. They need to plan for wide array of outcomes - this is a market that shut down for a couple days in 2008."
- Ben Johnson, director of passive funds research of Morningstar
"Ideally, mutual fund and ETF providers should be able to handle instances of volatility of performance and asset flows through diversification of their offerings. That said, for boutique fund management companies with only a handful of strategies, this may prove difficult as the firm's expertise in a certain asset class may lead to concentration risk as a business, leaving them vulnerable to shocks. From a sales and marketing perspective, it's imperative that clients have a clear understanding of when differing investment strategies will have the wind at their back or a headwind, due to dollar weakness, a capitalization bias or a regional bias in equity portfolios. This way, shocks, even if unpleasant, are not completely surprising. This communication can be accomplished in a number of ways, including regular meetings or phone calls with clients, particularly in times of significant market events. It's also important to note that it's not just about communication, but developing a strong relationship through continuous engagement to maintain trust. This gives us the ability to stay focused on a few specialist fund offerings while still having business diversification."
- James Abate, president of Centre Funds
"Operationally, I think most entities have in place whatever safeguards they need. This could affect margin requirements though. Regarding marketing it is just making folks aware that the volatility will likely pick up but the impact will be very country and company specific. Altegris provides what's called an Altegris Academy on their website, as well as fund commentary and spotlight pieces to arm our advisors with educational materials to talk to their clients about volatility and how their portfolio is positioned."
- Jack Rivkin, chief investment officer at Altegris
"Mutual fund and ETF providers receive many questions from their clients on how various global elements are impacting their investments. To manage client expectations and reduce behavioral market moves we find it is important to provide information that advisors can share about the philosophy and mission behind the investments in their client's portfolio. Education around active asset allocation helps managers like Horizon with the ability to be flexible to respond to ever-changing market dynamics and make the necessary adjustments to a client's portfolio."
- Ron Saba, senior managing director of investment strategy at Horizon Investments