March 2020

In these uncertain times our Investment Committee are meeting more regularly than usual. We met on 10th March, shortly after a sharp drop in oil prices and amid continuing panic around COVID-19.

We had been considering reducing equity exposure by around 5% and buying global bonds. For the time being and after considerable discussion, we have decided that the time is not right to reduce further equity from the portfolios.

The economic situation has changed dramatically in just a few days, and the opportunity to remove equity now to potentially re-buy at lower prices in the future is a risk that we do not wish to pursue. In the meantime, for some clients, the cash that we reinvested into fixed income in early February proved worthwhile, increasing in value as equities dropped in price. The huge negative impact on equity values has been seen broadly across the world, almost indiscriminately and without exception. Leading indices in the UK, US and Europe are down 20-25% since they hit their peak in January and the graph below puts KMG’s strategies into context alongside the MSCI World index.

This chart shows the short term impact, and the direct comparison with what is happening in the global market and the benefit of a diversified portfolio. It has been our aim over many years to spread your portfolio of investments incredibly broadly, balance the pursuit of growth against what happens when markets fall, and to try to reduce the impact of events like these. It is nice to be able to demonstrate that our approach does limit volatility in turbulent times.

The chart above shows performance since the beginning of 2019. The virus shock has to be taken in the context of long term growth, and in time will come to be remembered as another event in an otherwise upward trend in asset price growth.

Looking to the future, the lockdowns or reduction in mobility that we have seen in China, South Korea and more recently Italy have not been replicated in the UK or the US, but that does not mean it will not happen. We have different health systems and a different culture, but the difficulty in stopping the spread of the disease should not be underestimated. The Budget on 11^th March and the surprise reduction in the UK base rate of 0.5% to 0.25%, all demonstrate that the UK government are geared to do what it takes to get us through the current situation.

In China a reduction in cases has been reported over the last week. Unfortunately, we suspect that we will see a reoccurrence in China of cases as normal daily business returns. The likelihood is that we will see several more aftershocks before we are really through the impact of this infection.

To that end, we take the opportunity to remind you of the importance of holding emergency cash. If you have sufficient cash deposits you might consider reducing or stopping income from your portfolio for a number of months, allowing markets to recover rather than withdrawing while markets are low. 

Please keep visiting the website for the latest updates and our views on the UK Budget.