Are we in a bull or bear market? The multi-manager view

THE Schroders Multi-Manager team has written repeatedly in recent quarters of how we felt investor positioning had become dangerously lopsided and vulnerable to rotation. Coming into this year, the atmosphere appeared as serene as the summer of 2007 for many of the market leaders. At the same time, it felt like early 2009 for the laggards - principally commodities and financials - who were enduring fierce bear markets.

So far in 2016, however, we have seen some extraordinary falls by the leaders of recent years and extraordinary outperformance by the laggards. By way of example, the Philadelphia Gold and Silver shares index (down 80 per cent over the last five years) is up close to 50 per cent year-to-date. The Nasdaq Biotechnology index in comparison (up 330 per cent over five years) is down close to 25 per cent year-to-date - a colossal dispersion in a two-month period. So in response to the question - "Are we in a bull or bear market?" - the answer appears to be both!

Indeed, if this rotation proves to be meaningful and not just the biggest short-squeeze in over 20 years, 2016 will likely feel like a bear market for the majority of active managers, as a bull market gets underway for the former laggards and the hitherto leaders suffer, at the very least, a sustained period of relative underperformance.