Unprecedented times

We hope you and your families are keeping safe and well and at least enjoying the nice weather when you can. These really are remarkable times that are testing the character of the nation. Equally testing of character are the investment markets.

Below is a communication we recently sent to our discretionary clients. Regular communication and explanation of markets and our actions are a key part of our service, maximising our accountability for protecting clients’ wealth. If you are yet to entrust us with your investments perhaps now might be an opportune moment to review?

February and March have been the most challenging times I can recall for investment managers. March was a particularly volatile month with the S&P 500 recording the fastest 20% correction in history. Panic overwhelmed the market and investors sold everything they could regardless of the underlying value. Equities, bonds and even gold initially, were all adversely impacted by fears of Coronavirus and its economic consequences. The dollar remained a safe haven despite the plummeting oil price and the determination of China to abolish the Petrodollar.

Our defensive positioning in infrastructure and gold were hit as the only exposure to these assets is through equities. The price of physical gold went up as you would have expected. If you tried to buy an ounce of gold you would have had to pay over $2,000 an ounce in some cases rather than the $1,500 shown in the market. Over time, the market price follows the physical price so this discount should also unwind going forwards. April has seen a recovery with the price hitting seven-year highs of $1750 last week. As governments print more and more money, we expect the gold price to keep moving higher.

Infrastructure funds are paid by entities like governments or utilities for using the funds’ assets like hospitals or wind turbines. These cash flows are contractual, backed by the underlying assets with minimal payment risk. They would normally behave like a high-income government bond but were sold off with the rest of the equity market. Now that these cash flows have been discounted a further 20%, the funds should generate a higher return going forwards until valuations are back to their previous level.

Those of you due valuations at the end of March will be receiving them in the course of the next couple of weeks. They will starkly reflect the market panic detailed above. However, I would re-emphasise that these are long term investments. The growth we have seen over the past couple of years has been wiped out, but then cash would hardly have been a better alternative. So far in April our positioning has seen us out perform the benchmarks as Gold and infrastructure funds start to behave as we would expect.

There will be more volatility to come, and markets now seem to be a tad over optimistic. However, the speed and extent of movements that we saw in March make it impossible to time the markets, so riding out the storm really is the best policy. It’s time in the markets not market timing.

Stay safe.

Paul Beasley ACII

Chief Executive Officer