Since I last communicated, Covid-19 has struck at the heart of our government and the lockdown goes on. The markets continue to swing daily. As such, it is paramount wherever possible to avoid tinkering with portfolios whilst this volatility prevails. There are various studies which highlight the danger of missing the best days of a recovery (ie being out of the market) and the overall impact this could have on medium to long term returns. I will be providing more analysis of this over the coming weeks, but in very simple terms the table below provides evidence over the last seven years.
| 31/12/1992 TO 31/12/2019 | TOTAL RETURN FOR THE ENTIRE PERIOD | TOTAL RETURN MINUS FIVE BEST-PERFORMING DAYS | TOTAL RETURN MINUS 30 BEST-PERFORMING DAYS |
|---|---|---|---|
| CAC 40 | 649% | 366% | 16% |
| DAX | 758% | 440% | 29% |
| FTSE 100 | 598% | 370% | 57% |
| HANG SENG | 1191% | 565% | 25% |
| NIKKEI 225 | 40% | -11% | -78% |
| S&P 500 | 1170% | 742% | 159% |
Source: Refinitiv, Fidelity International, February 2020 *Period of analysis: 31/12/1992 – 31/12/2019. All calculations use local currency total returns, except for the Nikkei 225, for which the calculations are based on the price index.
You will all recall at least one of the following events, and hopefully experienced the strong and sustained recoveries thereafter. I plan to elaborate on each of them further in future communications.
- OIL CRISIS – OCTOBER 1973
- BLACK MONDAY – OCTOBER 1987
- TWIN TOWERS ATTACK – 11 SEPTEMBER 2001
- ASIAN CRASH – 1998
- TECHNOLOGY BUBBLE – JANUARY 2000
- FINANCIAL CRISIS– 2008
Whilst these figures highlight the impact on major world markets and the indices we are all familiar with, the portfolios we recommend within our overall financial planning are calibrated to our clients’ needs and objectives. After we determine an accurate risk profile and a medium to long term time horizon, we diversify holdings across sectors (equities, property, fixed interest, bonds, cash) and countries, which is known as ‘asset allocation’ This is in order to optimise potential return versus acceptable risk. Diversification is a key element in the construction of any portfolio, although the swift impact of Covid-19 has impacted most sectors quite severely. We always observe the stringency of defined (yet dynamic) asset allocation. Our medium to long term positioning has prevailed through similar setbacks and we believe it remains the right positioning to adopt. Whilst asset allocation shapes the return, the selection of funds within the portfolio is also of paramount importance. Ben Yearsley our non-Exec investment director is continually assessing fund managers who will potentially outperform (he had 40 direct dicussions/communications with fund managers in March alone).
From a business continuity perspective, perhaps unsurprisingly some of the major providers have struggled to cope with the implications of Covid-19. We continue to operate as closely as possible to normal. As previously outlined, all of our superb office team are coping with ‘professional distancing’ (my new term) by working from home, with full access to all of our systems, switchboard etc.
We have also explored the benefits of ‘Zoom’, an online meeting portal that can allow groups to continue meeting ‘face to face’ as it were. We have successfully used this for internal meetings, and are considering how we use it more widely. Whilst it purports to be secure there are always risks with such applications, as Boris Johnson almost discovered when he shared a screenshot on Twitter of a recent cabinet meeting which would have allowed access, had the meeting not been password protected. That said, it is a fantastic application for keeping in contact with family and friends as well as formal meetings, and can be used for no cost.
FINALLY, AND IMPORTANTLY, PLEASE BE MINDFUL OF THE POSSIBILITY OF FINANCIAL FRAUD AT THE MOMENT. AS EVERYONE IS EXPECTED TO UNDERTAKE TASKS REMOTELY (INCLUDING BANKING ONLINE), THE OPPORTUNITIES FOR NE’ER-DO-WELLS HAVE SPIKED. THIS MAY RANGE FROM REQUESTS TO HELP SOMEONE IN DIFFICULTY, OR INDEED OFFERS TO HELP YOU FINANCIALLY OR MEDICALLY (THE OFFER OF RESERVING YOUR VACCINE), TO BOGUS CALLERS PURPORTING TO BE YOUR BANK. AS A COMPANY, SFP HAVE ALWAYS BEEN WARY OF WRITTEN (EMAILED) CLIENT INSTRUCTIONS FOR WITHDRAWALS, AND AS MANY OF YOU WILL KNOW A RECORDED CALL WILL BE UNDERTAKEN BY YOUR ADVISER BEFORE ANY SUCH REQUEST IS CARRIED OUT. SIMILARLY, I URGE YOU TO TAKE WHATEVER PRECAUTIONS YOU DEEM NECESSARY IF YOU ARE SEEMINGLY CONTACTED BY ANY INSTITUTION, HOWEVER TRIVIAL YOUR CAUTION MAY SEEM.
I hope this message has provided some clarity and reassurance. When we exit from this global crisis, there will be many profound changes in the way we live, perhaps for the better. For example, from a business point of view, people will travel less to work and to appointments, after experiencing the ease and advantages of working remotely. Even more importantly, people and communities will have supported each other and built new and lasting alliances.
We will keep you informed. As ever please stay safe. All of our advisers and support team are available if you have any queries at all.
We’re here if and when you need us.
Best wishes,
Jon.
This article represents a personal view from Jon Treharne, and is based on his opinion of economic data from across the globe. It should not be used for investment purposes and does not constitute advice. For investment advice please refer to your financial adviser. No party should act or refrain from acting on anything contained in this material. Relevant primary materials should always be consulted at all times for all purposes. No statements or representations made in this material, document or at the presentation are legally binding on Shore Financial Planning (Plymouth) Ltd or the recipient and no liability is accepted in connection with this material. This article may not be reproduced or circulated without prior permission. Issued by Shore Financial Planning (Plymouth) Ltd, authorised and regulated in the UK by the Financial Conduct Authority.
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