I am sending this message to all clients, so please forgive on this occasion, that I am not personalising it to you.
Last week, I sent a message under the heading Global Concerns – Our Views and I had very positive feedback from almost 2/3rds of the recipients and I have therefore decided that during this unprecedented period of uncertainty, that a regular communication to all clients may well be welcome.
If however, you would prefer not to receive this, please do respond to this e-mail to ask to be removed from my list and I will then ensure that you receive no further copies.
It’s fair to say that things are moving extremely quickly and there is a danger that as soon as I have sent a message, that it will be out of date, but equally, there are some important factors that could be of interest to you and in particular, when all you will see in the press and on the news are negative messages, there are some positives as well, which would otherwise be missed.
For example, take the main Stock Indices of the Financial Times 100 Share Index in the UK and the Dow Jones in the US, these are the figures that are often quoted that have been seeing the huge volatility and record falls and it is easy to get swept along in the belief that all investments are reacting the same way.
The main principle behind the construction of portfolios to meet income and growth objectives is that you spread through different asset classes and different types of investment as a means of controlling risk. It’s fair to say that portfolios will include a fair degree of Stock Market exposure, but this will not be full exposure to the main indices quoted above, but rather, a better spread across equity markets. Whilst you cannot be immune from market movements overall, your investments can be structured to be defensive on the downside and to be ready to take opportunity on the upside. This is what your Fund Managers get paid for and it is the job that they have to do.
Traditionally, when Stock Markets become volatile, US Treasury Stocks and UK Gilts, Property and other lower risk assets like gold are the safe havens that are turned to.
Speaking to one Fund Manager today though, he described the current environment as having moved to ‘a dash for cash’ by selling whatever assets can be liquidated by people who have moved to ‘panic mode’. With the falls in Stock Market values, this has meant selling other assets to avoid crystallising those lower Stock Market prices. This in turn, drives down the value of other assets like gold and this is being witnessed at the present time.
He also went on to say that we are living thorough an unprecedented time, which is entirely unique, seeing the levels of stimulus that are being thrown at markets by central Banks, so much so that the economic textbooks are pretty much irrelevant at the present time. That having been said, we should also remind ourselves that when market prices are set, they are anticipating ahead in terms of where markets are likely to go in the medium term. If you follow this rationale, it could follow that we will see an upturn in markets before the current coronavirus actually reaches its peak, and of course, only time will tell in that regard.
So where are we now in all of this?
The severity of this downturn has got the same gravity as the 2008 situation, but in fact, the plummet in market values has been much faster. The experience of 2008 though, shows that volatility continued for some time after the drop, but there is always the possibility that the period of volatility will be correspondingly shorter this time. I certainly think it will be premature to suggest that things have bottomed out as yet, but even though the volatility is likely to continue for a few weeks and we may see further falls as a consequence, there is without any doubt value in current share prices of Companies that are robust and that will not only survive, but will thrive again in due course. These are appropriate for Fund Managers to be looking for the opportunities to buy into these investments and even if they do go negative in the short term, it will ensure that when a rally comes, they will fulfil the objective of needing to capture as much of the upside as possible. They can only achieve this by being invested in the market rather than waiting for the market to turn. By then, it will be too late.
In the very short term, the value of all of these decisions will not be visible, but in due course, it will be possible to measure the success and even though it may be the third quarter of this year before we really see a rally begin, or it could even be later, we should then see the benefit of these activities.
Consequently, even though all we see at the moment are negative headlines, there are some silver linings to this particular cloud in the form of opportunities, which endorses my belief that the right course of action is to remain invested.
I hope that you will have found these thoughts to have been of interest and if you have any questions, do by all means, send me those by e-mail and I will respond to you as quickly as possible.
In terms of the actions that we are taking with the office, we are planning for this to be manned full time and we will be achieving this by rotating who is actually in the office at any point in time, thus maintaining the requisite social distancing. (That is also one of the benefits of being a small business, there are only 3 of us to rotate!) Our phone should therefore be answered most times, but probably the best means of communication temporarily is e-mail, as we can then respond and will aim to do so as quickly as possible.
Our best wishes and stay safe.