The effects of Covid-19 have had wide spread effects on financial markets around the globe. Below I have provided an insight on how we are seeing market events and some historical context to help frame them…
Given the extraordinary social and economic environment we are in, I would like to take this opportunity to update you on what’s been happening on global stock markets and the actions myself and the team have been taking on your portfolio.
Your investment team…
Rest assured that your investment team continues to actively manage your investments on a real time, day-by-day basis focused on your medium to long term objectives. At the time of writing we continue to have a fit and healthy team. On Monday, we implemented our well-rehearsed business continuity plan, setting up a rotational team structure whereby half the team operate from our Salisbury office while the other work remotely, then rotating on a weekly basis. This move allows us to maintain near full efficiency while increasing our social distancing and helping to protect the team and their families.
What has happened on global stock markets…
During March 2020 the longest bull market in history finally came to an abrupt end as the world’s investors became consumed by the short-term uncertainty surrounding the spread of Covid-19 and the economic effects. The sheer pace of the stock market fall has been extraordinary, reflecting the speed with which the virus has spread and the government-imposed social restriction measures.
Putting current market conditions in historical context…
Such market falls are uncomfortable for all investors and it is natural to be concerned at these times. However, such stock market ups and downs are to be expected and as in the past, each dramatic fall has been closely followed by a recovery – see chart below. It is during these extraordinary periods that rarely seen, medium to long term investment opportunities are created; we believe that this time is likely to be the same for investors that stay the course.
How we have been managing your portfolio…
We came into 2020 with an overweight holding in cash after reducing portfolio exposures to property holdings. Through January and most of February we maintained the cash positions, awaiting an improved opportunity to buy a number of core, well researched, companies that we see as holding over the long term.
We have therefore, been taking advantage of the recent market declines, slowly investing the cash in your portfolio into those companies that have been on our target list for some time. In addition, we have been reducing your portfolio exposure to corporate bonds (fixed interest loans to companies), which we believe at current yields, do not offer you medium to long term value.
The proceeds of these corporate bond sales have been used to build positions in companies which have strong balance sheets and focused on the future. Examples include; certain pharmaceutical companies (the demand for drugs and medical equipment is likely to increase) and power generation companies (demand for electricity and gas will remain in place). We continue to monitor the markets for medium to long term opportunities that are trading at favourable prices.
Loo rolls, teleconferencing and supermarkets…
It’s worth remembering that amidst all the media coverage we are subject to at present, covering everything from supermarket shelves being affected by panic buyers, the excess demand for certain personal hygiene products(!), the hunt for a vaccine and the demands for teleconferencing facilities, when it comes to investing in companies, it’s important not to get distracted and lose sight of traditional company fundamentals. Does the company have a market leading product or service, is it well managed, does it meet our Environmental, Social & Governance requirements, has it got a strong balance sheet and so on.
No doubt there will be some big winners and unfortunately, some casualties but our job is to focus on those fundamentals and look to where we believe the situation is going and tune out the noise as best we can.
What next…
As we continue to navigate through this period of social distancing and market uncertainty, we believe that the markets have overreacted. However, we are very aware that markets could well continue to move lower over the short term as investors look for a ‘bottom’ in prices. At Casterbridge we strongly believe that it is not about ‘timing the market’, rather it is ‘time in the market’ that will see you stay successful over the medium to long term.
We will continue to manage your portfolio according to the view that the virus is expected to dissipate, the world will return to normality and the global economy will regain momentum, supported by the enormous and coordinated stimulus packages being drawn up and deployed by Governments from around the globe.
At these current market price levels we are highly constructive on stock markets and believe that the portfolio activity being undertaken through this period will provide your portfolio with strong holdings for the medium to long term.
Ultimately your health is of paramount importance. We urge you to take the recommended precautions and not to worry about your investment portfolio; this is in capable hands with our seasoned and experienced investment team. However, and as always, please do not hesitate to contact me or your Financial Adviser should you wish to discuss any aspect of your investment portfolio.
