What a week this has been for us here in the UK.
It seemed as if the UK Government had a plan to try and get through the virus without disrupting society too much. On the face of it, this seemed the best idea. Public health England estimates that an average of 17,000 people in England alone die each year from Flu. Global deaths in total from the Coronavirus are nowhere near this amount.
So why did the PM press the self-destruct button on the UK economy on Monday evening?
A part of me wonders if pictures of desperate scenes in Italian hospitals played their part. Another part of me wonders if there is something more behind this media fuelled panic. Perhaps we will never know, and it does us little good to spend too long worrying about it.
Our focus at Thomas and Thomas is to try and understand what is happening with markets, so we can explain it fairly and openly to our clients.
In short, the problem with markets now is liquidity. By this, we mean that investors around the world are demanding that assets are sold, even if this means huge penalties.
This irrational behaviour causes huge problems for assets that can’t always be immediately sold.
One example of this is Property Funds. Our clients will remember that we made a song and dance about the perils of property funds towards the close of 2019. We took the radical step of removing this asset class altogether from our model portfolios. This move has paid off, as these funds are now suspended in the main. I am so glad we are not caught up in that particular problem.
Corporate Bond funds are also being tested. This is frustrating, as they are included within portfolios to try and offer some respite from a falling Equity market. The good news is that we can now see central banks around the world pumping huge amounts of liquidity back into bond markets which could actually lead to another ‘Bond Bubble’ (value increase) further down the road. I will gladly take that for my clients! In addition, the bond funds that we use for our clients have not suspended which is very positive.
None of our model portfolios have fallen as far as the FTSE 100 to date. This clearly illustrates the benefit of diversification and active management. We also can see that our higher risk strategy client portfolios have fallen more than the lower risk which is reassuring.
Darren’s Positive Stuff!
Many of you will have read China’s announcement yesterday that zero Virus cases had been found domestically and they now have people back on the streets and returning to work in some cases. I do wonder how this virus ever came about, but at least the place where it started can show that they have got it under control. Yes, it is going to take time and huge levels of diligence to stop it coming back – but here is a genuine success story for the markets – a quantifiable result.
Secondly, I read some very interesting data from Bloomberg on Wednesday where they analysed the data coming out of Italy. I said last week in my article ‘The Italian Job’ that I felt Italy is now key to the market bounce back as we need more data. Bloomberg shared that nearly half of the deaths in Italy have been linked to ‘at least three underlying serious pre-existing health conditions’.
Indeed, only three people who have died so far (out of a population of 60 million) had no previous conditions. Whilst any death is terrible, this data starts to pave the way for markets to calculate the financial and economic damage. Italy is sadly not out of the worst of it yet, and our hearts go out to the many families affected. However, there will come a point where they see a reduction in cases and the data will continue to build a more positive picture.
Thirdly, the huge amounts of central bank stimulus being pumped into markets are likely to help your portfolios if recent history teaches us anything. The ‘bounce back’ for markets looks more feasible.
Finally, markets get used to things. My hunch is that this virus won’t just disappear. It may become a way of life over the next couple of years as countries develop ways to cope with it. Markets get spooked by ‘new’ dangers but they usually react in a very muted way to recurring ones. There may be more struggles ahead yet as we absorb the impact of closed down economies – but we can see firm data now that is more than just Chinese whispers.
Our amazing clients.
To conclude, I want to talk to you about an incredible bunch of people – you!
It is often during a crisis that we see the true nature of people.
This morning I actually received a call from one of my clients who wondered if he could financially help any businesses locally who may be in need and could I look out for any who needed his assistance? I was truly moved by the selfless way that he thought. What an amazing man.
I have also been pleasantly surprised at the amount of clients wanting to invest IN to the market – despite all the media negativity. We are really busy working to help these clients and it is a pleasure to do so.
These past few weeks have honestly been exhausting, but the volume of kind emails and notes encouraging and thanking us has kept me going. I started Thomas and Thomas in 2006 because I wanted to serve my clients in a dedicated and personal way – without all the levels of management speak and corporate waffle we see around us today.
It is during times like these that I most love my job.
Our client portfolios have obviously taken a hit over the past month, but they are in better shape than the FTSE 100 and they are poised to profit handsomely from the bounce back when it comes.
If you are lonely or worried – just call us. We are here for you 100% and we will come through this rather dark time in good order.
My best wishes as ever.
Darren
