Market Update – 10th March 2020.

Calm has returned to global equity markets this morning after yesterday’s (Monday 9 March 2020) panic and as a result, markets around the world have recovered strongly.

Yesterday saw global equity markets sell-off due to concerns around the potential economic impact of the coronavirus outbreak and an oil price war between Saudi Arabia and Russia.

However, comments from Donald Trump and Steven Mnuchin (the US Secretary of the Treasury) overnight has helped to ease nerves.

Donald Trump said he will propose a payroll tax cut and “very substantial relief” for industries that have been hit by the coronavirus outbreak, while Steven Mnuchin said that he is having daily conversations with the Fed Chair, Jay Powell – which suggests to us that the Fed will cut interest rates at their next monetary policy meeting on Wednesday 18 March 2020.

As we have previously said in our Weekly Market Updates, equity market volatility is likely to remain elevated in the short-term as global equity markets are currently trading on news headlines, which is a fool’s errand – while we appreciate that the current equity market volatility will be unnerving, it is very important to maintain a long-term perspective and resist the urge for any knee-jerk reactions. There will always be periods of market uncertainty and volatility and this current period is no different.  We prefer to take a long-term approach to investing, because evidence shows that this leads to better outcomes for our clients as time in the market is more important than trying to time the market.

In fact, at my wealth we believe that it is important to create and maintain a robust and thorough investment process to illustrate how our investment team are looking after the needs and objectives of our clients over the long term.

We have an active, discretionary managed approach to managing client portfolios, i.e. one where our qualified Investment Managers can react and adapt a clients’ portfolio to the changing market conditions by making instant portfolio changes.  We believe that risk management is just as important as investment performance and returns.

Our investment philosophy is at the core of the investment process and we believe that consistency is key as long term outperformance can be generated through small but consistent outperformance.  We believe that good asset allocation, sector and stock selection can add significant value through active management.  Asset allocation is key to our investment strategy and is the primary way in which we manage a client’s portfolio with the discretionary powers they give us.  Deciding what weighting to assign to each asset class is vital as we are trying to carve out the best risk adjusted returns we can for clients.  A lot of work goes not only in to this but also to stock selection within each asset class.

We have a rigorous process to pick investments for our clients and to start we allocate capital based on the asset class we are looking at, what geographical area we are looking in to (for example, US vs UK), we also look at industry/sector and drill down to the individual equity/fund.  By going through each of these in detail as part of our investment process, we can pick what we believe to be the best funds in the market for the portfolios that the clients are invested in.

Our aim is to manage our clients risk as effectively as we can and therefore operate on the basis that we are trying to optimise the potential return for each unit of risk taken.  What is of course important to note, is that when we are looking to allocate capital we consider a number of factors along with whether the funds will best fit our long term objectives for our clients.  We will review liquidity, volatility, performance, management style, long term and short term views of the investment house, track records, just to name a few.  We have a rigorous investment process, led by an expert team of fund managers and analysts which is constantly reviewed and monitored.  Asset allocation continues to be at the core of our investment strategy and therefore any funds that are held within each asset class are chosen independently and reviewed rigorously to ensure that they fit in line with our objectives and expectations of how they can complement our client portfolios.  We also ensure the optimum level of diversification and so clients are not just seeing returns from one area but a number, and therefore will be less exposed to specific risk in any one market.

When we receive cash in to the portfolio, we operate a filtered in buying process whereby we aim to fully invest the cash by 90 days.  It can sometimes be slightly quicker than this or slightly longer depending on our short term view of markets.

The investment team review markets each and every day and have complete autonomy when it comes to decision making and as markets move quickly they need to have the ability to do so also, which is why we operate on a discretionary basis. Whilst we appreciate that over most long-term time horizons equity markets tend to rise, history is littered with sharp falls in equity markets – market shocks always tend to be greater on the downside than on the upside therefore we are at all times looking to manage risk and how much volatility a client can be exposed to and so drip feed the cash in over time to mitigate against this.

We believe our drip-feeding approach is beneficial for clients as it gives the investment team the flexibility to recognise and be proactive to changing market opportunities by speeding up or slowing down the level of investment and it can lessen the risk of a client investing a large amount in one day at the wrong time.

As we said earlier, whilst we appreciate that current global equity market volatility may be unsettling, there will always be periods of market uncertainty and volatility – and this is no different.  However it is important that the focus continues to be on the long term needs and objectives of our clients and the point remains that we are optimistic over the medium to long term, particularly within equities.  However it is vital to remember that there will of course also be elements of the ‘unknown’ throughout the year which can cause some volatility in the short term and so it remains important to treat them as such – short term.  As we have said in our previous communications, investors can make attractive returns over the long term and we maintain that the best policy is to remain invested as equities should outperform over long periods of time.  What is certain throughout all of this, however, is that the investment team are qualified, competent and clear in their long term goal for our clients which is to ultimately beat inflation and cash over the long term.  At my wealth, our core philosophy is that if you wouldn’t do it for your mum and dad, then don’t do it at all and this is exhibited throughout our investment team and process.

Investment Management Team

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