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February 28th 2020 – Written by Andrew Chorley


Our intention this month had been to focus on pension planning; however, given the effect that Coronavirus is having on World Stock Markets we felt that it was important that we provide an update on what this may mean for you. In the last few days my email inbox has been overflowing with professional investors views on the Coronavirus; some commentaries have been good and some bad! In our view the problem we face is that we are not healthcare professionals and have no real understanding of how a pandemic can spread and the implications for the World; therefore to try and forecast what that means for different investment markets is very, very difficult and the result is that the range of possible outcomes are very wide. 

There are templates that provide some guidance based on what has happened in the past; since the late 50’s there have been four major pandemics Asian Flu, Hong Kong Flu, SARS and Swine Flu; all lasted around eighteen months and had varying effects upon economies and markets. This time however, there are differences, in the last 15 years China has become an increasing contributor to Global Growth; poor data from this region now has greater implications for the rest of the World. We are also in a very different environment than before with ultra-low interest rates and multi-year highs in many different asset classes. 

What we feel we can say is that the decline in equity markets reflects our long held view that in recent years sentiment has been playing a key role in market direction and investors willingness to take on risk; it seems the latest news flow is more important than fundamental valuations measures. Current reaction proves the point with decisions seemingly based on the latest headline - most have which have been bad when it comes Coronavirus. 

It is possible that the spread of the virus and whether it is declared a pandemic could be the trigger for the large correction in equity markets than we have been expecting; however, it is also just as possible that more positive news could result in a sharp recovery for equities. There are a lot of unknows and no one really knows how this will develop; in this type of uncertainty we hope that our “all-weather” approach to investment that holds a range of assets and seeks to diversify how returns are achieved will keep us all on an even keel. Our strategy remains unchanged and our approach can be summarised as follows:

  • Cash will continue to provide a buffer from market volatility and provide capital to deploy if opportunities arise;
  • Fixed Interest securities such as UK Gilts and US Treasuries offer a safer haven than equities and a reasonable source of income 
  • Multi-Asset Funds that provide the core of many of our portfolios will not be immune from large declines but these should not be as severe as equity markets
  • Equity holdings will decline in line with markets, but with holdings varying between 20-40% based on individuals attitude to risk declines for overall portfolios should be limited
  • Value strategy will decline in line with markets, again this forms a relatively small porportion of portfolios and is a strategy where we expect volatility
  • Momentum strategy we expect to move out of equities here into Gilts at the next review date (29th Feb); strict risk management rules mean that this will reduce equity holdings and limit losses
  • Alternatives such as Hedge Funds or Trend Following startegies are flexible enough to change direction and benefit in a falling market which would contribute to limiting portfolio losses 
  • Gold is an area where we have recommended 5-6% as a hedge against equity market volatility; performance in recent months has been offsetting declines in other areas

We are witnessing rapid and ever changing effects on markets as events unfold, if we feel it appropriate we will send further views as they do.

EST. 1999