Virus update from KMG
On 21st February 2020 our investment team met for an ad-hoc discussion on the effects of the Coronavirus prompted by a number of articles in the press.
Viewing the virus through a rational lens, it is simply a new strain of an existing family of viruses which for most people “can cause mild symptoms including a runny nose, sore throat, cough, and fever” according to the World Health Organisation’s website. In the long term it is likely that the world will get used to the idea that Coronavirus is endemic and we will live with it, much like the flu.
However, for older people and people with pre-existing medical conditions it can be more severe and of course the media are much more likely to report fatalities than the huge proportion of infected people who are recovering and moving on.
There are clear winners and losers in the supply chain, with video game downloads soaring while people are in self-quarantine but holidays and large meetings of people such as Mobile World Congress in Barcelona being disrupted or cancelled. The affected companies are adapting as best they can, for example we have heard reports of small goods such as key fobs being flown out of China on unused passenger planes rather than being shipped.
We must consider the effect of the virus on global economies and therefore on the value of your investment portfolio, so the rational view does not matter. Emotional human perception of the virus is more important than the facts and we believe there is a risk that a sudden panic could cause equity markets to take a real hit at some point. The problem is that we cannot predict if and when the panic will set in; if equities do crash it will happen extremely fast and if we wait for it to happen we will not be able to act in time.
We have therefore made a decision to move around 5% of your equity exposure into global fixed interest funds, taking some of the profits from the positive equity market run that we have enjoyed recently. The change will be implemented in the next few weeks, unless the situation changes significantly. We feel that this is a cautious approach, protecting your money from a potential drop in value and allowing us to buy back into equities when the time is right.
It will be extremely difficult to time going back into the market, so we will keep the situation under review in our regular investment committee meetings and in ad-hoc meetings when necessary.
This action will be covered by our discretionary mandate. Advisory client portfolios will continue to be reviewed at their valuation point – if you do not use our discretionary service and are concerned or want to make changes before your next valuation please contact us.