Please find below our “Investment Market Update” as at 10th March 2020
Blue Sky Investment Market Update
After a dramatic day in the markets, we thought it prudent to communicate our view of events and deliver a perspective.
There is no doubt that yesterday was brutal, especially for sectors related to the oil industry. Any investment/index with a high weighting of oil stocks, suffered badly. It’s difficult to feel positive about what’s going on when the news-flow is so focussed on negativity but we will be rewarded with a significant drop in prices at the pumps. Similarly this price adjustment will stimulate many economies who are net importers of oil. This benefit will of course take time to feed through and I know we are all more concerned about the ‘here and now’.
It was a busy day yesterday, interestingly not from clients (I hope our regular communications help deliver a perspective), but more because we were speaking to our investments partners and the press. You may be interested to read comments from Gary in the Bournemouth Echo on line yesterday (time 1:57pm) https://www.bournemouthecho.co.uk/news/18291277.coronavirus-dorset-live-updates/
This morning, the major equity indices have partially rebounded, and the FTSE 100 is up by +2.74% at 9am.
Whilst the news-flow is awful and there are big swings in markets, on a relative basis our portfolios have held up well. The higher risk portfolios were performing the best prior to this downturn but naturally, have had the biggest falls. However, I would just like to reassure you that despite everything, all our model balanced portfolios are still posting positive returns for the rolling year. Besides gilts, the stand out performer has been infrastructure with the Foresight holdings still showing double digit returns for the rolling year. This compares favourably with the FTSE 100 for example, which has fallen by 16.03%.
Below is a guide which hopefully helps you through this turmoil.
A guide on current market conditions:
The spread of the Coronavirus and the subsequent response by governments around the world, has led to an economic crisis and a significant drop in the value of company shares across the world. Chaos unfolded on Monday 9th March as the price of oil plummeted by 30%, its worst one day drop since the first Gulf war. This was as a result of Saudi Arabia saying they would ramp up oil production to stimulate demand, as opposed to limiting the flow and increasing the price. Share prices in oil companies, such as Shell & BP, fell dramatically.
• It’s so tempting to sell existing investments but experiences from the 2000 technology bubble, 9/11, the Iraq war, the financial crisis, trade wars etc, tell us that when prices capitulate, the key is not to sell and register a loss. Stay on board.
• Certain sectors will be more resilient than others, but there tends to be indiscriminate selling in the vortex of negative news, which always throws up great opportunities.
• We don’t know how long this will last but investment markets have a habit of over-reacting to unexpected surprises and vice versa.
• It’s important to think beyond the immediacy of what we are experiencing. We will still need healthcare, technology will continue to alter our lives, infrastructure innovation will be required and we will still be committed to counteracting climate change and improving our planet.
• A stock-market shock certainly makes investors think again of the need to diverse their investment strategy. It will rock many people, but it serves to act as a reminder that complacency, isn’t anyone’s friend.
• The price of government bonds have risen strongly in response to the crisis, counterweighting, to some extent, the impact of falling equity prices. A balanced investment portfolio will always hold a good proportion of bonds. Prices of gilts have rocketed.
• Following the emergency 0.5% drop in interest rates by the Federal Reserve in the US, we now expect the Bank of England to cut interest rates, possibly down from 0.75% to 0.25%!
What to do now if you are already invested?
• The first bit of advice is don’t panic. Be calm. Not easy we know, with the chaotic news-flow.
• If you don’t need the money, then sit tight, prices will bounce back, it’s just a question of when. If you need the money now, you should not have invested in the first place!
What to do now if you have money to invest?
• Whenever there’s a sharp downturn, markets more often than not, recover. History reminds us that we should be buying during downturns, rather than selling.
• The above reminds us of the statement ”the investment markets must be the only sector where you want to buy at a high price and sell when the price is low”.
• It would be prudent to invest money periodically into this market. In other words, drip feeding money makes sense and lowers your risk by buying at different prices, such as those who pay regularly into a company pension.
• For investors who are looking long term and prepared to commit lump sums, then this period is likely to provide a good entry point. Timing the market is extremely difficult.
At Blue Sky, as you know, we are always keeping abreast of market developments with the help of extensive research from our investment partners. It is at times like this, that such expertise comes into its own. Of course, portfolios have fallen but the impact has been tempered by diversification. The headlines around the FTSE 100 have been startling, but it’s worth remembering that this index is skewed heavily in favour of oil stocks, which have taken a battering.
We may not have seen a virus like this before, but neither have we seen a response from governments, like we have with the Coronavirus. There are lots of lessons to be learnt but when this passes, the fit and healthy will flourish, both on a human and business perspective.
The Blue Sky Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.