Is the Novel Coronavirus infecting your investments?

Is the Novel Coronavirus infecting your investments?

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By Peter Dine, 9 March 2020

The news is currently dominated by the Novel Coronavirus (COVID-19). It’s a highly contagious disease which has spread to around 50 countries and has infected more than 110,000 people around the world. China accounts for more than 70% of people infected and it appears to have peaked in that country, but the extent to which the virus will continue to spread globally is still unknown. So far around 3,800 people have died from this strain of Coronavirus but also more than 60,000 have recovered.

Investment markets don’t like uncertainty and the market reaction to the spread of the Coronavirus has seen share prices around the world fall during February and remain volatile in March to date. However, it’s important to put this into perspective. The US S&P 500 market index (an often quoted index for the US share market) has so far fallen from its peak on 14 February by just under 13% and fallen by 8.0% year to date. However, the S&P500 is still up by 7.25% over the last 12 months. With the markets running hard in 2019 and in early 2020, it’s not surprising to see a pull back, although such things are notoriously difficult to predict. It’s also normal for markets to drop by 10% or more. Since 1946 the S&P 500 has experienced declines of between 10% and 20% on 27 occasions.

Whilst the spread of viruses (and the negative market reaction to it) is unsettling, it’s not unprecedented. We’ve been here before. Remember SARS in 2002/2003? It was less contagious but its mortality rate was much higher. There have been lots of other examples as the graph to the right shows. However, each situation is different and one factor this time around compared with SARS is that China makes up a much larger share of the world’s economy and global trade. In the short term, this event is potentially particularly negative for industries such as aviation and tourism and also for commodity prices and exporters. At the same time, some sectors such as healthcare may benefit from the outbreak. We can expect a near term drop in economic growth both domestically and overseas. The graph shows despite these outbreaks, markets move higher in the long run.

We remind investors markets are continually responding to news which could affect corporate profitability and economic growth. This creates volatility in markets. Patience is a virtue and looking through short term volatility and focusing on the longer term is all part of investing in equity markets. For investors who have been invested in the markets for a while, this is part of the investing journey.

The fund managers Saturn Advice uses are continually analysing large amounts of data and using this information to make decisions on assets to hold in their funds. In this respect, market volatility creates opportunities for active fund managers to buy (or sell) assets that in their view have been mispriced by the market. Here are some examples of what our fund managers are saying;

Milford Asset Management

“As active managers, we have the flexibility to adjust our portfolios in real time based on our assessment of the risks and rewards on offer. Market volatility such as what we are currently experiencing provides opportunity for us to deliver better outcomes for our investors over time. Our investment team continues to monitor the situation in real time and is making decisions within the funds accordingly. Whilst there is uncertainty in the short term, we believe that in the long term it is likely that global economic growth will continue, supported by low interest rates and by governments poised to respond.”

Platinum Asset Management

“With the re-emergence of concerns with cases in Korea and Italy, we have acted swiftly to implement risk reduction across our International and Asian equity portfolios.  The flagship Platinum International Fund was 71% net exposed to markets at Monday’s close (24 February) and we are continuing to trim winners and add protection as appropriate.  However, we do expect strong reactions to lead to buying opportunities.”

Bennelong

“At this stage, the coronavirus appears manageable. China has seen a peak in the growth of infections and deaths, and the spread appears now largely contained. The virus has spread to other countries, including in earnest in South Korea, Italy and Iran. Based on the experience in China, it could take some weeks for containment in these other countries. This is a developing story that feeds the media with fresh daily content, and so it is likely to stay in headlines for some time yet. That all said, we are monitoring the spread of the coronavirus very closely. Clearly, it has potential to take grip and have more dire implications, including for the way we invest. 

In terms of investment approach, we are currently treating the coronavirus as a short term disruption to markets, perhaps only of a few months longer. Indeed, we have taken the opportunity to up-weight our position in certain stocks that were sold off on fears of the virus, buying at prices we believe represent very good long term value. We have also sought to manage risk by trimming other portfolio holdings, again as we see appropriate. This is a part of our portfolio management process in which we proactively and continuously manage both the risks and opportunities within the portfolio”.

How has the Novel Coronavirus affected portfolios managed by Saturn Advice? This is very much dependent on each client’s investment strategy and particular investments but as a guide, the table below shows the returns before tax and after investment manager fees for 2019, and 2020 year to date, based on Saturn’s moderate, balanced and growth investment strategies.

If you are concerned about how the Novel Coronavirus may be impacting your investments, get in touch with us today and talk to one of our financial advisers.

The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate personalised financial advice from a qualified Authorised Financial Adviser to suit your individual circumstances.



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