With so many people concerned about their investments and wondering what they should be doing, we’ve put together some responses to your most frequently asked questions.
Please remember, if you have any immediate questions or concerns about your investment portfolio, please get in touch with your financial adviser.
If your risk profile is correct (and this may be a time to check in with your advisers if you have real concerns) then at this point a rebalance may increase your equities exposure. We are still at an early stage in the COVID-19 experience and at this point increasing equity exposure may not be optimal. In which case, and assuming you are comfortable with your risk profile and the recommended asset allocation, continuing to allow your portfolio managers and asset allocation to operate as they always have may be the better option. It may help to remember that this volatility, as unpleasant as if feels, has been incorporated into the selection of your respective risk profile. Share markets have already fallen circa 30% and many have staged a rally from these lows. This doesn’t mean the sell down is over – volatility, both up and down, will continue while COVID-19 is present.
Again, as above, if your risk profile and the resulting portfolio is correct for you then staying the course in the absence of perfect foresight is the proven path. This doesn’t mean that it will necessarily be the most comfortable but over the longer term staying the course has proven to be the appropriate course. We do not know what will happen from here – government stimulus and central bank intervention have steadied financial markets, the world is well and truly focused on the task at hand and while it may get worse before it gets better, there is little doubt that globally we are fighting COVID-19 with everything we have. We will win this war but we may not win all the battles from here on out and there will be setbacks.
The short answer is no, and that assumes you own good quality assets and/or have employed skilled folks to look after this on your behalf. Good quality investments will not go to zero – they may fall in price and the earnings and consequently dividend and distribution payments may fall a bit but they will survive. Good businesses and assets going into this will be good business and assets coming out of this. Some will fare better than others and COVID-19 will change the investing landscape and opportunity set. Skilled managers recognise this and take action to avoid those business that will struggle and seek exposure to those that will thrive.
Every month we provide a full economic update and market outlook. Below is a summary of the market outlook but please refer to the April Economic Update for the full article here. If there are significant market movements in the interim we will provide an update on this page.
So, what of the markets? Wall Street achieved an all-time record as recently as February 19th and we followed suit the next day. Both markets then sank the quickest into bear-market territory since 1987 and bottomed (for the first time?) on March 23rd. Wall Street made one of its quickest ever recoveries – gaining 17% in three days before flattening out and drifting a little lower this week
It seems too late in our opinion to start selling unless forced. It is equally too soon to recommit capital back to equities. Depending on risk tolerance, it might be the time for the brave to start dipping their toes in the water. Again, the big lesson to be learnt from this crisis is that these things keep happening so it is always important to try and stay on top of keeping our portfolios in shape when times are good! It is always too late when markets have crashed!
We will start to know it’s over when the volatility indexes return to normal levels. All of the standard volatility measures were higher in March than they were in the GFC! In 2009, it wasn’t until the beginning of March 2009 that the market started to build in a base in stable fashion – and that’s when volatility returned to normal.
We highlight this scenario because a volatile market shows heightened uncertainty and so all news – particularly negative news – can cause another run down.
When we think of the fundamental value of companies and market indexes, we usually try to take a long-run view of earnings and dividends. If that is the case, a quarter or two of bad earnings would not typically play a big part in those long-run considerations – especially as we expect a recovery back to normal levels when the pandemic is over or at least contained and improvement is clear.
We only now beginning to witness downward adjustment in corporate earnings and until we have clearer picture we will remain reluctant to increase exposure to equities now on the basis that they are cheaper. It is worth remembering that the price of a security is primarily driven by the expected level and certainty of its future cash flows. While the stimulus measures and containment strategies are clearly positive, we still do not know what the ultimate impact on corporate earnings will be and until we have sufficient visibility on earnings to determine the value of the securities and the market indices they constitute.
In the coming month we expect to have a clearer picture of the economic consequences of COVID-19. With 24×7 news and self-isolation, it is too easy to get caught up in what is going on right now as opposed to the broader context. Moreover, comparing fund performance is fraught with problems today. With such a short-sharp sell-off in bonds and equities, funds with a large allocation to illiquid assets that might not have yet been re-priced could look overly good. Don’t be fooled!
We understand and share with you how difficult and surreal things are at the moment, but life will return to ‘normal’ at some point. Markets have corrected and economies have faltered but have always recovered, though not always in the same form they entered the respective crisis. Our focus is to be alive to how COVID-19 is changing and this will position us well for what comes next.
Remember, you are not alone and we are all here together. If we can do something to assist you please call on us.