article , video 03-17-2017

Be Prepared for Increased Volatility

Co-CIO Francis Gannon explains what increasing volatility could mean for investors, and how it could benefit active managers. 

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One of the more interesting aspects of the market I think investors have to recognize going forward is that we are going to see an increase in the volatility of volatility going forward.

In the past, we have had a relatively low volatility number, in looking at the VIX index.

But we have seen these spikes within volatility. We saw a spike around Brexit; we saw a spike of volatility around the election in November.

But going forward, I think investors have to recognize that active managers are able to take advantage of these volatility moments in a way that passive managers cannot, and it's going to become more prevalent going forward.

Around the idea of volatility in volatility is the fact that we live in a world today where investors are prone to overreaction, in both the downside and the upside.

And as an active manager, you have to be able to take advantage of those specific moments. And I think that's key to outperformance going forward. We saw it, believe it or not, in 2016. You saw it in Brexit. You saw it in the election.

And, most importantly, you saw it in the decline in the market in the beginning of last year. But going forward, as we see these micro bursts of volatility, you're going to see increased volatility in those volatile moments, and investors should be able to take advantage of that. An active manager will be able to take advantage of those moments.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of January 5, 2017 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

The CBOE S&P 500 Volatility Index (VIX) measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Investments in securities of micro-cap, small-cap, and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. (Please see "Primary Risks for Fund Investors" in the prospectus.) Investments in foreign companies may be subject to different risks than investments in securities of U.S. companies, including adverse political, social, economic, or other developments that are unique to a particular country or region. (Please see "Investing in International Securities" in the prospectus.)

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