Swiss Life Asset Managers advises investors not to focus equity allocation too much on peaks in volatility. This indicator does not provide any reliable signals in the current market environment.
Implied volatility is an indicator of how the equity market assesses risks. Investors have benefited in the past from watching out for implied volatility peaks to identify potentially risky market conditions. However, in the current market situation, which is characterised by swift and strong central bank interventions, investors are often on the lookout for a bargain. They do so with the expectation that central banks will indirectly support the market.
The equity markets have recovered very quickly from the recent strong peaks in volatility. Investors who used this indicator as a signal to reduce risks were penalised. According to Swiss Life Asset Managers, the volatility indicator will become more useful once investors focus on the inflationary impact of monetary policy. Currently, it warns against relying too heavily on volatility peaks when it comes to equity allocation.