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Staying calm in a crisis

Date: 15 May 2020

Markets have seen unprecedented levels of volatility due to the effects of the coronavirus (covid-19) global pandemic. Whilst it remains to be seen how the global economy will respond to nationwide lockdowns and unprecedented economic support, we look at what this means for investors in the short term and what we should  remain focused on in these uncertain times.

Plotting a course

Unfortunately, a global recession is now an inevitability. The duration and severity of the downturn will depend on how quickly authorities can contain the outbreak and, ultimately, how effective the current ‘lockdowns’ prove to be.

This means we are effectively in ‘phase 2’ of what we think will be a four-stage process of decline and recovery (see below). It is important to remember that the emergency central bank intervention we have seen so far is likely to be ineffective in terms of halting the spread of the virus or its impact on markets. It is aimed at helping struggling companies and consumers to keep their heads above water.

Only the virus will dictate when we move from one ‘phase’ of the process to the next. It is at these inflection points, or potentially slightly ahead of them given that markets are forward looking, when investment opportunities are likely to arise. However, these opportunities are likely to be stock specific in the initial stages; this means that buying an index such as the FTSE 100 won’t be the best way to capture any recovery and instead stock selection is likely to be key.

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Reading between the lines

Anyone who reads the papers knows that the world’s economies are going through a period of uncertainty.

It’s natural at these times for some investors to get twitchy, which only serves to make the situation even less predictable.

The truth is that share prices invariably rise and fall but, for the long-term investor, this shouldn’t be the primary concern. Historically, long-term performance tends to even things out and there are good reasons to see opportunities where other investors are seeing only gloom.

The world of investing is overflowing with metaphors, adages and fables, so here are our top seven principles for keeping your head when all about you are losing theirs.

Our seven principles of investing

  1. Speak to your financial adviser
  2. Make an investment plan and stick to it
  3. Invest as soon as possible
  4. Don’t just invest in cash
  5. Diversify your investments
  6. Invest for the long term
  7. Stay invested

Staying the course

Wise investors know that investing is a long-term commitment. Historically, investors who have been able and willing to ride out the periods of decline in the markets have seen their investments recover.

Investing with a long-term outlook and with long-term goals is the best way to reduce the impact of stock market fluctuations and see out periods of volatility. The chart below shows that short-term volatility is a characteristic of investing, but over the long term the trend is a rising one.

staying-on-course.jpg

Past performance is not a guide to the future. The value of units may fall as well as rise.

Source: Quilter Investors as at 31 March 2020. Based on an initial investment of £10,000 over the period 31 December 1996 to 31 March 2020. Gross return in pounds sterling. Global Corporate Bonds is represented by the ICE BofAML Global Corporate index; Global equity by the MSCI World Index index; and Cash by the ICE BofAML British Pound Overnight Deposit Offered Rate. The information provided is for illustrative purposes only and doesn’t represent the past performance of any particular investment. It is not possible to invest directly into an index.

 

Compared to previous pandemics such as SARS or swine flu, the covid-19 pandemic has become a global economic crisis. As a result, individual governments and central banks have announced unprecedented levels of monetary and fiscal stimulus to counteract the impact of ‘lockdowns’, with the US Federal Reserve and Bank of England both cutting interest rates to new or record lows.

With some countries yet to reach the peak of the virus, it is unclear when social distancing measures will be eased significantly and economies will begin to return to normal, which could potentially pave the way for further policy action if required.

The Value of expert financial advice

In times like these it’s important that you continue to speak to your financial adviser. They will be continually monitoring the latest developments and will be able to explain what’s happening with the markets and be best placed to explain what that could mean to you and your financial plans.

 

Important information

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. The performance data do not take account of the commissions and costs incurred on the issue and redemption of shares. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter Investors Limited (“Quilter Investors”), Senator House, 85 Queen Victoria Street, London, EC4V 4AB. Quilter Investors is registered in England and Wales (number: 04227837) and is authorised and regulated by the Financial Conduct Authority (FRN: 208543).

This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document.

Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Quilter Investors as a result of using different assumptions and criteria.

Quilter Investors is not licensed or regulated by the Monetary Authority of Singapore (“MAS”) in Singapore. This document has not been reviewed by MAS. QIL-137-20/220-0406/April 2020