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Why volatility can be an investor’s best friend

Vivian Lo and Andrew Hamlin, portfolio managers at Aston Hill Asset Management, are staying away from high multiple stocks, since history shows this group experiences the biggest losses during a rising rate environment.

Stock market volatility is usually held up being an investing bugaboo, however it should not be feared since it creates possibilities to generate some pretty healthy returns.

But investors will need to pick their spots given the valuation run-up recently and the chance of significant equity market pullbacks as rates of interest rise.

Andrew Hamlin and Vivian Lo, portfolio managers at Aston Hill Asset Management, for instance, are keeping away from high multiple stocks, since history shows this group experiences the largest losses during a rising rate environment.

The pair, who concentrate on dividend-paying stocks for the $330-million Aston Hill Growth & Income Fund, also have a couple of other basic rules.

The first isn\’t to second-guess a rising market because you’ll miss out on returns, but will have a process in position to take risk from the table. Another is to keep a healthy cash cushion and be disciplined about putting that money to work when stocks become cheaper.

“Within this environment, investors should own equities and, on any pullback, they must be adding to their positions,” Hamlin said, noting that the fund continues to be very much long risk both in their equity and bond exposure despite the fact that cash levels are elevated.

The fund’s only bond exposure is within high yield due to the managers’ concerns about rising interest rates and because high yield has a much shorter duration than investment grade.

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