Quarterly Review

Locking down the experience.

David Wheildon / May 2020

The critical global circumstances may be a whole new ball game but, says David Whieldon, the skills to mitigate the worst effects are core to the way we've always done business. Widely diversified portfolios and calm judgement grounded in experience.

Firstly, I hope you are well and staying safe in the world we currently inhabit. How times have changed in the last three months; I have just re-read the January review and it is as if it was written in a parallel universe. The subject of Brexit appears to have been deleted from the English language and replaced with Coronavirus as we all focus on reducing the burden on the NHS through social distancing.

Social distancing does appear to be the way forward in managing the virus and businesses across the globe are having to react and adjust their working models to cope. Coping is easier for some than others – as the likes of BooHoo and Laithwaites Wines see an increase in their online sales whereas the likes of British Airways are literally and metaphorically grounded. Central Banks and Governments have moved to provide support by cutting interest rates to virtually zero, pumping moneys into their economies and in the UK bankrolling the furlough scheme.

Whatever the politicians suggest, the UK furlough scheme cannot go on for ever and although they have the option to extend it, 1st July is the date at which it is due to end. Allied to the public pressure for workers keen to get back to work to support themselves and their families it is clear there will be an easing of the lockdown in the coming weeks. Any easing will be staggered, and its continuation will be dependent on the size of the inevitable rise in infection rates known as the “second spike”.

When we remember that the lockdown is not designed to stop the majority of us catching coronavirus but is designed to stop us catching the virus in greater numbers at once, we can see that the realistic way of dealing with it is for the majority to catch it, building herd immunity over time, whilst keeping those particularly vulnerable as safe as they can be until a vaccine has been prepared. If the second spike is too high and the NHS comes under unacceptable pressure the easing of the lockdown will be reversed until it can be considered again.


Uncertainty and recovery.

With all the uncertainty over global economic activity it is no great surprise that stock markets have fallen in recent weeks. The one thing markets hate over all others is uncertainty and in this climate where none of us have personal experience of a global pandemic the markets have been feeling the pressure. The only positive is that virus-driven market falls are regarded as a “black swan” event and are not down to a change in global Central Bank policy or a global financial crisis.

On this basis, once the lockdown is eased in each country we will see economic activity build again and there will be a recovery. Whether that recovery is rapid (a “V” shaped recovery) or slower (a “U” shaped recovery) remains to be seen; our view is that it will be a little of both. Some sectors will recover quickly and indeed will progress further (supermarkets, online retailers) but others will recover more slowly and may not make it all (airlines, cruise ships).

In the last few weeks we seen the values of our portfolios recover from their absolute lows and move forwards. In general we are not too far from parity over the last 12 months which considering the position of the stock markets, is in comparison, pleasing.

Although no-one is ever content losing money, the portfolios have held up well and are on track to be in profit over 12 months in the coming weeks. Although from this position the long-term outlook for markets is good, the short term is still likely to be volatile and at times like this it is best to hold on and let the fund managers do their work. We may see weakness at some point in the coming weeks but in the longer term a global economic environment where interest rates are virtually non-existent, Central Banks are pumping money into their economies and oil is circa $23 a barrel is an environment that promotes a fantastic level of growth. These conditions will be needed to assist the global economic recovery and in this environment there will be major success stories as well as the inevitable losers.

We rely on the stock picking skills of the fund managers to sift the good from the bad and are in touch with them all on a regular basis. Several of the funds are holding larger weightings of cash than usual and the managers are looking to reinvest these at the appropriate time.

We have great confidence in the widely diversified nature of our portfolios and of the skills of the individual managers and having been through previous market troubles of varying causes (1992, the ERM expulsion, the tech bubble bursting in 1999, both Gulf wars and the 2008 global financial crisis) we know how to operate in a climate of economic uncertainty and how to manoeuvre our way out of it even if the cause of today’s troubles is new to us.






This article is the opinion of David Wheildon