These fund managers are buying the dip, should you?

Fund managers have been snapping up internet and software shares. Is this the right time to for you to buy the dip with ASX shares?

| More on:
bar graph with man jumping over low number representing dip in asx shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Buy the dip.

Sound investment advice, or a mug's game?

Depending on your approach, it could fall to either side of that line.

Timing the market to buy at the lows, or sell at the highs, is educated guess work at best. Which is why you'll be hard pressed to find a single fund manager who's managed to do so successfully over the long term.

With that said, it's hard not to look back to 23 March, when the S&P/ASX 200 Index (ASX: XJO) hit its post COVID-19 selloff low, as prime buy-the-dip territory. And with the benefit of hindsight, of course, we know it was. The index of the top 200 listed Aussie shares is now up 29% from that low.

But the buy-the-dip question is again beginning to percolate.

Like United States share markets, most ASX companies have seen their share prices slip over the past few weeks, with the ASX 200 down nearly 5% since 25 August. And it's down around another 1% in early afternoon trade today.

That was to be expected, with all the major US and European indices losing ground yesterday (overnight Aussie time). The tech-heavy Nasdaq Composite (NASDAQ: .IXIC) again led the way down, losing 2.0%. That puts the Nasdaq down 9.5% from the all-time highs it hit on 2 September.

You can blame US politicians for that. Yesterday, Democrats and Republicans failed to reach agreement on a new, and much needed, stimulus bill. The Republican package is worth around US$600 billion (AU$822 billion), while the Democrats were spruiking stimulus worth more than US$2 trillion.

At the end of the day, US businesses and households got $0.

That's politics for you.

Share price tug of war

Whether you choose to wait and see how things play out or find some shares you believe are trading at a bargain, fund managers opted to swoop in after the Nasdaq's big falls.

Goldman Sachs' data (as reported by Bloomberg) showed that "professional managers that make both bullish and bearish equity bets scooped up internet and software companies on Friday and Tuesday at the fastest rate in five months."

Addressing the fundies' bargain hunting spree, Chris Gaffney, president of world markets at TIAA Bank, said, "They're just riding the wave and believe that with interest rates low and inflation non-existent and with the Fed saying, 'We'll let it run a little hot,' there's more room to run. Is it a bubble and do we continue to inflate that bubble? I think that it can continue to inflate."

Rick Meckler is a partner at Cherry Lane Investments. When it comes to buying the dip, he points out that you're currently competing with traders selling at near record high share prices. Meckler says (as quoted by Reuters), "It's going to be a battle for the next couple of days from investors who are trying to pick spots to get back in to technology and traders who are using some of these sharp rallies to take profit."

Alec Young, chief investment officer at Tactical Alpha LLC, says central bank support has been supporting buy-the-dip investors (from Bloomberg), "You'd probably need to see a lot more pain inflicted before you started to see more hesitance on the part of the retail crowd. There's been a pattern where buying the dip has been working ever since the Fed stepped in aggressively back in March and April. It's been such a successful strategy."

Foolish takeaway

Lacking a functional crystal ball, I have no more insight into how the share markets will move over the short term than anyone else. Which makes consistently timing the precise lows in the market impossible.

That's where longer-term investors have the advantage.

While share prices could well fall further from here, there are a lot of tailwinds in place to send them back up in the mid term.

First, though there are no guarantees in life, it's hard to imagine that US politicians won't break through the current gridlock over the next tranche of stimulus spending. One way or another, that's likely to come through over the next few weeks…if not sooner.

Second, as Chris Gaffney and Alec Young pointed out above, the US Fed — and indeed central banks across the developed world, like our own RBA — will keep rates at record lows and prime the quantitative easing (QE) pumps for as long needed. And there's nothing share markets like more than easy money.

Then there's the looming promise of a vaccine. There's no guarantee here either about the timing or the eventual effectiveness. But the world's top biotech shares are pouring everything they have into being the first to knock down the coronavirus.

Failing that, we have advances in treatment and the promise of accurate rapid testing to minimise the economic damage caused by social distancing and lockdowns.

On the testing front, Australian company Anteotech Ltd (ASX: ADO) is leading the charge.

On Wednesday, Anteotech announced it had completed the second phase of its high sensitivity COVID-19 antigen rapid test sooner than originally expected. The company is now moving into the third phase with an eye on moving toward full commercialisation. Anteotech estimates that could happen within the next 5 to 8 months.

Year to date, the Anteotech share price is up 100%.

If you'd bought the dip in Anteotech's share price back on 13 July, you'd be sitting on a gain of 200%.

Where was that crystal ball when we needed it?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »