Casterbridge Wealth Investment Manager Will de Baer gives us his latest thoughts and insights on how markets are behaving and how client portfolios are positioned…
Good Riddance Q1 2020…
Investors have made it through the first quarter of 2020, albeit bruised and battered by the Covid-19 market volatility. The market ‘Bears’ won that quarter’s battle, with the FTSE 100 down 24% and the S&P 500 down 20% since the start of the year. All sectors were hit hard with the travel industry, oil & gas and the miners leading the way down.
Potential Market Bottoming Process Underway…Don’t be fooled by the near term market rallies…
Of course, it is too early to tell whether we have seen the market bottom and we are not going to make such predictions at this time of uncertainty. However, the investment community are pointing to the 2020 market lows registered last week as a potential bottom. There is a market driven process to ascertain a bottom, whereby markets will rally and fall sharply again to test the lows. In previous periods of market turmoil this process has lasted between six weeks to two to four months. Of course, this time could be different; however, in the absence of Covid-19 clarity we believe this bottoming process is underway and we will therefore likely see further volatility ahead.
What we’re watching (On the economy, not Netflix)…
The market hates uncertainty; In our view genuine optimism resulting in the markets confirming a bottom and rebounding is ultimately based on the reduction in the rate of Covid-19 related infections and deaths. China’s ‘Official’ Covid-19 numbers have significantly improved through March to the extent that the country is back up and running; however, the avoidance of a second wave emerging from there will be important. These measures will dictate the duration of the lockdown and help us understand the true nature of the economic and corporate effects. Either way monetary and fiscal stimulus measures are in place to help minimise the overall damage.
Dividend cuts and suspensions…
The markets have also been absorbing the recent spate of corporate dividend cuts. These include many blue-chip dividend income stalwarts such as the banks, house builders and retailers. We are watching this development closely and the effect on portfolios, especially those with income requirements. These measures are of course alarming at first sight; however, they are sensible in the short term. The dividend cuts should be temporary, aimed at helping companies preserve balance sheet integrity to provide enough firepower to see this crisis through without default or bankruptcy and, should the need arise, to seek further government assistance. In the interim remaining dividend income should be able to meet most client income requirements; where there are any shortfalls capital could be temporarily used until core dividends are reinstated.
Looking ahead…
The Casterbridge Wealth Investment team have been hard at work positioning portfolios for the recovery, taking advantage of the current market levels. The team have rebalanced portfolios to a slightly overweight exposure to equities having invested the proceeds of the corporate bond fund sale. The team have topped up the battered holdings including the miners, the energy companies and the telecoms providers amongst others. We have also added exposure to the FTSE100 and S&P500 ETFs as well as select US company names where client portfolios permit, including: A major technology name, a pharmaceutical giant; a global payment technology company and a Railroad Company. All these exposures have been bought at what we believe to be excellent medium to long term pricing levels and are expected to be beneficiaries of the inevitable recovery.
And finally…
At the time of writing, the market ‘Bulls’ remain weary; we may see some near term isolated bullishness quickly followed by bearish market moves as the bottoming out process moves ahead. However, we believe that once the Covid-19 crisis finally shows confirmed signs of improvement, the stock market recovery will be just as swift as the downturn as the market ‘Bulls’ stampede back into equities…we are positioned accordingly.
As always, if you need any more information on any aspect of this article or anything else Casterbridge related then please don’t hesitate to contact us
