Given the sell-off in equities today we thought that you might appreciate a quick update as to how we have been positioning the portfolio, in light of the evolving Covid-19 situation.
Firstly, it is important to point out that our exposure to large-cap equities, the asset class most affected today - has been limited for some time (although not for this reason we have to admit!).
Secondly, as mentioned in our February update, the sectors most affected within equities - namely oil companies and airlines - are deliberately not represented within the portfolio due to our focus on sustainable technologies.
Having said that, the fact that 10% of the world's population is now in quarantine (750m people in China) means that there is going to be contagion to sectors and supply chains in industries that we do have exposure to.
As a defensive measure, we have reduced our exposure to Asian equities and have increased our allocation in gold, income-generating assets, absolute return strategies and cash. This is proving to be effective as portfolios are up month to date.
The IMF has tried to steady markets today by predicting:
“China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived, … In this scenario, 2020 growth for China would be 5.6 percent. This is 0.4 percentage points lower than the January WEO Update. Global growth would be about 0.1 percentage points lower.”
We will continue monitor the impact daily and will react accordingly to the data coming out, whilst remaining cognisant that the Chinese numbers are (in some people's view) a work of fiction.