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We are living in unprecedented times, with much of the world under lockdown due to COVID-19. There are a multitude of potential outcomes resulting from the increasingly extreme global measures being taken to prevent its spread and of course many unanswered questions regarding the lockdown exit strategy or how it all ends. While we are yet to change our portfolios allocations materially, we are making evolutionary changes to the underlying holdings to emphasise balance sheet strength. It doesn’t presently seem appropriate to add significantly to portfolio risk: we stick to our unwavering belief that a well-constructed diversified portfolio is the most efficient way to achieve longer term outcomes. Nevertheless, it is instructive to sketch positive scenarios into our outlook and where better to look for inspiration for a positive spin on events than China, which was the first country to go into full lockdown at the end of January. What can we learn and more importantly what can we expect?

In extremely volatile markets as we have seen recently, loss aversion markedly increases. This is an important psychologically concept and is encapsulated in the expression “losses loom larger than gains” (Kahneman & Tversky, 1979). It is thought that the pain of losing is psychologically about twice as powerful as the pleasure of gaining.

As an antidote, please find attached 7 Reasons for Investors to be Optimistic.

We hope that this document assists you in these turbulent times.

We are available to answer any questions that you may have. Please don’t hesitate to contact us.

As we temporarily enter a new way of living, I spent Wednesday night giving my grandparents a step by step guide on creating a Skype account. After a good 45 minutes (which felt like weeks) and a lot of patience we managed to complete the process. They couldn’t quite believe that they could see me and me them as we sat down to eat dinner together via Skype. With my Grandpa’s interest in the financial markets, especially the real estate sector, we had a lot to talk about considering six UK open-ended property funds were suspended last week with the expectation that others will follow this week.

After a period of remission verging on complacency, markets were dramatically infected by coronavirus in the final week of February, with the sharpest weekly fall in equities since the financial crisis. The trigger was the realisation that the spread of the virus beyond China, and in particular into Europe, was not only inevitable but immediate, with Italy’s economic heartland suffering an extremely serious outbreak which is still in its early stages. Taking a line from the damage caused to China’s economy, investors began to discount a very sharp contraction in economic activity in Europe, and globally, as the virus continues its inevitable spread, now in 86 countries and rising. The impact on economies is immediate, with factories closed, supply chains interrupted, travel and leisure activities curtailed, services withdrawn and large parts of the worst affected countries, China, Italy, South Korea and Iran (and the expectation of many more to follow), in effective lockdown.

“There are decades where nothing happens; and there are weeks where decades happen”. After the longest bull market on record finally came to an end last week, Lenin’s famous quote concisely sums up the current mood among investors. The S&P 500 officially moved into bear market territory on Thursday after it breached the 20% level in a record 16 sessions of trading. Such price action reflects the tragic reality that the coronavirus has now caused the death of thousands globally, and the focus quite rightly is on limiting its human cost. Amidst the barrage of negative news, it is important for long term investors to act rationally and take account of the situation as it develops.

Harmony – benefits of a multi-asset approach i.e. minimizing downside while still benefiting from the upside.

Following last week’s equity market sell-off on the back of markets’ concerns over the impact of the Coronavirus we thought it timely to supply you with a special update in addition to your regular monthly performance and risk statistics report.

Obviously this virus is of great concern to all, already infected thousands and claimed many lives which is a travesty, however its economic effect is not yet quantifiable and its impact till recent on capital markets have been largely muted.

When the seeds of the Arab Spring were sown in 2010 in a market in Tunisia, few would have foreseen the chain of events that followed. The resulting wave of civil protest and unrest that rippled across north Africa led to the collapse of regimes and leaders that had been in place for many decades, most notably Muammar Gaddafi. Roll forward nearly a decade and 9,123 kilometres and another otherwise unremarkable marketplace finds itself at ground zero for the current bout of volatility in markets. In reality there is little to link these events, but the pattern of snowballing and onward contagion is perhaps not so different as camels’ backs get broken.

When markets panic, the only investment mantra I believe in is “breathe, think, act”. Sell-offs can provide fantastic buying opportunities, but elevated risks often accompany them. After last week’s sharp drop in global equities, is this now a good entry point or is this a falling knife we do not want to catch? Are markets overly worried about coronavirus or are more negative prospects not yet priced in? We believe that, at these levels, risk assets offer attractive long-term expected returns, but more volatility is likely to come.