FOR PROFESSIONAL FINANCIAL ADVISERS ONLY
As we always preface these updates, the Coronavirus is primarily a human tragedy and anybody reading this update has access to the data, just as we do. The numbers of new cases in some countries are in the ‘take off’ phase where the statistics can become overwhelming. We would like to offer an optimistic observation on some of the data, however. For the fourth day in a row the European epicentre of the disease, Italy, has recorded cases lower than their (current) peak level of 21st March. Amongst the major nations reporting cases the same appears true for Switzerland, Austria, Germany and Australia. Also, for the 4th day in a row, no new confirmed or suspected cases have been reported in the original Chinese hotspots of Wuhan and Hubei province.
Stimulus and new stock market records
In our last written update (17th March 2020) we highlighted that Central Banks globally had made considerable efforts to reassure markets, whilst many (but not all) governments had made a lot of noise but delivered relatively little. This dithering led to a market panic not seen since 2008 and, by some metrics, to volatility and drawdowns never seen before.
Only after epic falls in risk assets can there be records rewritten for market surges higher. The two day returns for the S&P in America have only been surpassed in 1987 and 2008. The reason for the recovery and subsiding panic was the Fed’s unprecedented package of monetary easing, and latterly the US Senate’s approval of a fiscal stimulus package worth circa $2 trillion, with the goal of staving off some of the most dire consequences of the US economic downturn.
Whatever it takes
Fiscal packages of varying magnitude are being urgently discussed/implemented around the globe. The whole world is vowing to emulate the words from the former President of the ECB in his speech in 2012 with regard to the Euro crisis. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”. The key point here is you can replace the words ECB with the name of any country and replace the word Euro with the economy and there we have the same backdrop – anything goes.
Not everything has changed
The global sell off in risk assets and subsequent, relatively small, bounce back has left some of the previous winning and losing trends in place. The US tech (growth) giants have held up relatively well whilst, at the other end of the scale, many of the already battered value stocks have been hit extremely hard. In the fixed income space, you have sovereign bonds holding up well whilst emerging debt, and particularly high yield bonds, have suffered the same fate as value stocks but to a slightly lessened degree.
Performance
Given our relatively cautious stance going into February 2020, our relative performance has been fairly strong across the IBOSS range of assets. In fact, we have our best relative data since we launched back in 2008 for both our PMS and MPS. There is further information available via your usual IBOSS contacts and via our website.
Outlook
It will come as no surprise that we expect considerable volatility for the foreseeable future but, as we always remind ourselves and others, this can bring opportunity. We were grateful to have received an update this week from a BDM who represents one of our emerging market active funds. He had recently had an update from the fund manager who described the country and sector changes he had been making in the last few weeks. In short, he had been taking advantage of the market’s reaction and, in some cases, overreaction. This is what we pay active managers for, not for sitting with the herd. It may be that when we finally get to the end of this traumatic period, and into a position where we can properly consider the results, we re-evaluate what and where value is in the whole investment process.
