Market Update
13 MARCH 2020
On Thursday 12th March the FTSE 100 recorded its worst one day fall in over thirty-three years, even worse than those days during the Great Financial Crisis. We have resisted the temptation to provide a daily commentary, but some days do require comment. Global markets’ reaction to COVID 19 has left many of us in a state of shock. A short ‘view of the world’ was posted on our website earlier this month but now seems an opportune time to step back and try to provide you with some further thoughts from the investment desk.
The pandemic is clearly a scenario that none of us have witnessed before. Governments, their citizens and obviously, investors are struggling to assess and react to what is a fast-moving situation. Markets hate uncertainty more than anything and with the ‘knowledge gap’ around the impact and timeline of the pandemic, in our opinion, many investors have assumed an absolute worst case scenario.
On top of the understandable concerns, nervousness and, dare we say it, panic amongst some investors around the human and economic impact of the virus, the markets have been dealt two further blows this past week; the Saudi / Russian fall out over oil supply prompted sharp falls in the oil price earlier in the week and exacerbated already heightened market concerns. However, the reaction of markets to these falls is somewhat unusual - most countries, being net consumers of oil, usually view sharply lower oil prices as beneficial (lower costs of consumption at the petrol pump boosts consumers and industrial users’ costs also fall). In this instance it simply led to more worry about global economics and provided an excuse to further mark down share prices. The second blow seemed to centre around President Trump’s decision to ban travel from Europe (ex the UK for some reason). This only served to further concern investors. All of this combined with a well-meaning but perhaps ‘clumsy’ Federal Reserve Bank cut to base rates has simply pushed investors to fret whether there is a ‘plan’ and if governments are in any way ‘ahead of the curve’.
Most of this is very understandable and we sadly have no greater insight into this than other market observers. However, yesterday’s falls did smack of capitulation amongst investors rather than any rational view of the fundamentals. We continue to take a measured, calm and thoughtful view of the holdings we have in clients’ portfolios. These are long term assets and whilst there will obviously be short term economic impacts, one has to focus on the underlying assets held and ask whether they have been permanently degraded as a result of this.
Some sectors will feel the impacts more than others of course but selling pressure by investors has become indiscriminate with defensive stocks falling along with everything else and this does not feel rational. We cannot ‘fight the market’ but we continue to assess the situation. Our Asset Allocation committee met this week and we concluded that whilst portfolios had clearly suffered falls in value and that the speed and depth of the market falls were greater than we foresaw just a week ago, we had a set of sensible long term assets. On balance we saw more opportunity than threat at these market levels and where possible are selectively increasing risk in a measured way to very oversold markets. We have not yet made this move but will continue to discuss doing so over the coming days and weeks. It is important to rationally analyse the economic impact and detach that from the short-term market reaction.
It is also important to remember that few of our portfolios are 100% exposed to equities and where we do hold equities, we have many different types of exposures (long only funds, long/short funds & geographic diversification). Many assets in portfolios have held up exceptionally well – for example a number of our fixed income positions and holdings in ‘Alternatives’ such as Infrastructure Funds.
Whilst this diversification has not protected from absolute falls in value, most clients will not have endured falls of the order that will no doubt be dominating newspaper headlines this weekend.
CAM has a robust ‘Business Continuity Plan’ (BCP) in place. Our BCP and senior management teams have been in constant touch and met yesterday to discuss our own operations over the next weeks. We have concluded for now that all staff will remain office based. However, this is a fluid situation and we will, of course, follow whatever official advice we receive from the government and health professionals. All staff are able to operate effectively from home if necessary. In addition, any staff with personal situations that might require them to work from home sooner are being offered that choice.
In summary, we remain very much ‘at our desks’, monitoring developments, talking and discussing amongst our investment colleagues about our approach to this highly unusual and rapidly changing situation. We are, as ever, keen to avoid the sensationalist and distracting headlines of each night’s news, popular press or social media and try to analyse in a calm and rational manner what the real impacts on long term assets will be.
Should you have any concerns about this, do please get in touch with your usual point of contact.
The value of your investments can fall and you may not get back the amount invested. Past performance is not a guide to future performance. Please see our website for more detailed information and risk warnings. You should not invest in or deal in any financial product unless you understand its nature and we recommend you seek advice. Compliance Code: GK5679