As you are no doubt aware, the last week of February saw the largest equity market sell off since what the media now call 'the Great Financial Crisis' (2007/8). The FTSE 100 finished the week down 11.9% and this performance was echoed in equity markets around the world.
The sell off in global stock markets particularly affected companies directly impacted by COVID-19:
- Ryan Air (20.93%)
- Delta Air (20.23%)
- Carnival (19.74%)
- Uber (16.84%)
- Boeing (16.83%)
- Trip Advisor (17.11%)
We also saw this concern spread more broadly to large cap stocks widely held by mass-market funds and ETFs, implying that much of the sell off was driven by retail investors panicking. This is corroborated by anecdotal information that we have received from brokers. Tellingly, Wisdom Tree Investments Inc. (one of the world's largest tracker fund providers listed on the NASDAQ) finished the week down 19.92%.
Even gold performed badly last week and offered little shelter. In a note from a fund manager he comments that 'losses incurred across equities were such that by Friday some investors faced substantial margin calls [Friday being month-end supports this argument]. This led to a desperate search for liquidity to meet those calls, and we believe this led to the sharp and sudden sell-off in gold on Friday afternoon as investors sought to take profits and realise cash in one of the few places they could.'
What does this mean for our portfolios?
As we reported last week we are in 'defensive mode' having increased cash and reduced equity exposure.
Unfortunately, despite this the portfolios finished the month down (Steady Growth 2.44% and Sensible Growth 2.96%).
Whilst we never enjoy negative performance we are pleased with how the portfolios have behaved defensively, whilst maintaining the ability to take advantage of any upswing in equity markets when they inevitably turn.
We continue to monitor the data emerging and if infection rates and mortality rates grow faster than anticipated we will make further changes. At this point in time though - based on a 2% mortality rate and a relatively low number of cases globally - last week's move seems like an over-reaction, especially if central banks cut rates.
From our perspective this creates real opportunity to buy assets at deep discount. If there is a much touted “V shaped recovery” i.e. very quick, we could see some strong upside performance when markets rally, although we continue to keep our powder dry until we have more reliable data on mortality, contagion rates and economic impact.
I hope this has been useful, we are of course very happy to chat it through if you would like a conversation, please be comforted that we are very focused on negotiating these tricky markets for you.