Sticking to investment principles
The reporting on COVID-19 has caused panic and fear across global markets and economies. The topic is now a permanent fixture across all aspects of media.
From a financial perspective, there are two possible paths:
1. A recession across multiple countries driven by a partial shutdown of industry and the workforce; or
2. An economic recovery driven by a two-pronged fiscal and monetary stimulus from governments, coupled with a realisation that the virus is not as severe as initially feared.
Currently, authorities are focusing on containing the virus to give more time for a vaccine to become a reality. This containment period is what is costing economies. As people are being sent home from work and movement of people across the globe is slowing, so is productivity. This productivity loss feeds into slowing growth and if it is prolonged, a recession.
However, there will come a time that the containment period will end and so will the loss of productivity. Ultimately, the reality is that society learn to live with the virus, as we do with all other viruses, and over time the probability is that a vaccine will become available. It is important to note that prior to the virus, the trade war between the US and China had stabilised, there was a lack of inflation and there were some very good indicators of economic growth.
While the period of impact is unknown, it is important to focus on the certainty that the fear and panic will ultimately end. When it does, good quality companies with solid balance sheets will emerge again as investment opportunities. Assessing whether the drop in company earnings is commensurate with the drop in price is an important method of determining whether or not a company has been indiscriminately sold.
Over a long period of time, we have been using investment managers that have the ability to reduce the impact of a market downturn using a variety of methods. Since February 20th the S&P ASX200 has dropped by 19.50%. We have run a small sample of client portfolios and on average the drop across our clients, has been between 4-6%^ over the same period of time. This shows the benefit of a well thought through portfolio, that utilises the expertise of professional fund managers.
We encourage everyone to be in contact at any time if you would like to discuss your particular portfolio.
^Individual portfolios will vary depending on each individual's circumstances.
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