It’s difficult to know what effect the Coronavirus will have on investment returns over the medium term, but it’s had a short-term impact on investors all over the world. Since early February, stocks have plunged as service delivery, manufacturing and travel across the world have slowed, pushing major equity indices back down to levels we saw in the fourth quarter of 2019. Despite the concern and tragedy for those already affected, we urge investors not to panic. It’s in times like these that it’s more important than ever for portfolio managers and investors to stick to tried-and-tested investment philosophies.
As portfolio managers, we focus on what we know instead of relying on uncertain media and economic news.
We rely on our in-depth research on company fundamentals, which informs our assessment of a company’s intrinsic value. We then get to know the business management teams to assess whether they are well-equipped to deal with short- and long-term challenges. Only when the business is attractively priced relative to its long-term return potential will we invest.
We mitigate geographic and industry risk for investors by diversifying our portfolios.
According to analysts at Morgan Stanley, April will be a pivotal month for the status of the Coronavirus, because if the US follows a trajectory like that of Italy and Korea then cases should start to peak. On the other hand, if the virus is seasonal, then the infection rate should start to fade in (the northern hemisphere’s) spring. The reality is that this remains an unknown and when combined with globalisation (trade, travel and other obvious global interdependencies), everyone is affected by the virus (directly or indirectly). As a matter of course, we diversify our portfolios across sectors, countries and different outcomes but the reality is that we simply can’t predict what all the possible impacts may be.
Despite the current uncertainty, we believe that low prices provide buying opportunities and that the global economy will recover quickly.
Bear in mind that before news of the virus affected the economy, US markets were not that cheap to start with and growth was expected to slow. In fact, events such as this have presented good buying opportunities in the past. We have not made substantial changes to our portfolios as a result of the virus but will continue to monitor valuations and developments.
Uncertainty is not new to our experienced team.
We have an experienced team who has seen and experienced a wide range of economic uncertainties in the past, both globally and locally. Collectively, we are well-equipped with a proven process and the fortitude to make prudent decisions. We will continue to monitor the situation with our clients’ investment interests at heart.
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