Investing with a COVID-19 Backdrop - Q&A with Integrity Wealth Solutions
We want to keep you informed with investment updates regarding COVID-19 and its financial impact and therefore we have prepared the following Q&A on some key questions that investors may have during the current pandemic.
I received a letter about my investments falling in value. What should my response be?
In 2018, the Financial Conduct Authority (FCA) introduced regulations that required investment managers to report falls of 10% or more in the value of investment portfolios in a ‘reporting period’ (three months) to investors as soon as they occur. The rules are intended to protect investors’ interests so that they are told ‘bad news’ about their portfolios as well as the ‘good news’.
The FCA requires certain providers/fund managers to send an additional notification each time the value of the portfolio falls a further 10%. Each notification must be sent within 24 hours of the fall taking place.
All of these notifications are for information only and there is no need or requirement for you to do anything. If you have queries that are not answered by our regular investment updates, please talk to your financial consultant here at Integrity Wealth Solutions. We receive the same notifications about your investments, and are in constant contact with fund managers through times of both positive and negative market performance, so are well placed to discuss the situation with you.
Why have investment markets fallen so far, so quickly?
The financial impact of COVID-19 has spread across the world as fast as the virus, showing just how connected we all are in both human and economic terms. Severe limitations on movement, as well as concerns about providing adequate healthcare, have created severe disruption to daily life and the global economy.
After COVID-19 was recognised as a global pandemic and its impact on global trade became clear, investment markets sold off heavily. The fall in investment markets was also worsened by a dramatic fall in the oil price when Saudi Arabia and Russia disagreed about oil production volumes, adding more pressure to an already nervous environment.
What is happening currently in investment markets?
The suspension of all but essential activities across Europe (and increasingly also the United States) has caused investment analysts to change their outlook on the global economy from positive to extremely negative. This has created panic in investment markets and forced governments to respond to try and restore confidence. The measures introduced by central banks and governments are extremely large, coordinated and designed to inject money into economies and to support business continuity. Even so, these messages have at times failed to bring back confidence within investment markets. As a result, global stock markets have fallen some 35% since their February highs. Even traditional ‘safe haven’ assets, like government bonds and gold, have fallen in value.
At the time of writing (25th March 2020) investment markets have shown signs of improvement, with some indices such as the FTSE 100 showing close to 10% gains on Tuesday (24th) as investors cheers the aforementioned stimulus.
Will stock markets falling further?
It is impossible to predict the future. Stock markets remain very volatile and there is the potential for further swings (upwards and downwards) over the coming weeks and months. If the actions of central banks and governments bring stability to their economies, this should be reflected in investment markets, but we do not know when this will happen. The information available to us tells us that the number of people infected by the virus will decline and the pandemic will end, but we don’t know when. Investment markets seemed to steady over the last week, mainly due to the stimuli governments have made and the data from the east showing some normality creeping back in. This steadying of markets could be a false floor or could have been the bottom of a bear market; no-one can accurately predict this.
Are we entering a global recession?
Yes, a recession (defined as two consecutive quarters of negative growth) is inevitable. But it’s important to consider the distinctions between previous global recessions and what we’re currently experiencing.
For example, the Global Financial Crisis of 2008 was sparked by failures in the banking sector that led to a general loss of trust in the entire global financial system. This created an internal shock to economies and investment markets. Today, the shock to investment markets is an external health crisis, rather than internal dysfunction. When the ‘shock’ of the COVID-19 pandemic diminishes, the economic recovery will not be linked to the strength of the banking sector, but on the effectiveness of the combined US$3 trillion that governments are allocating to support their economies during the enforced shutdown.
How has this affected client portfolios?
Our client’s portfolios are diversified across different types of investments (assets) and geographic regions. However, as you would expect, portfolios with a greater allocation towards equities have been hardest hit during this crisis. Portfolios which hold equities in greater amounts, have fallen more than 20% in some cases. Recent stock market falls have been so prominent that some cautious portfolios have fallen more than 10%.
Should I be thinking about selling my investments?
In times of heightened – even unprecedented – levels of uncertainty, everybody feels the collective instinct to ‘do something’ to try to take control of events. Panic buying, against best advice from the government and supermarkets, is testimony to this very human notion. But whether we’re talking about toilet paper or investments, acting rashly can have poor long-term consequences.
Investment markets are still firmly in negative territory but showed daily gains of around 9% on Tuesday and 5% yesterday (as of writing – 26th March 2020). In addition to this, this month’s Research Investment Committee Report from Bank of America Merrill Lynch suggests investors should remain invested –
Since the Great Depression, S&P 500 total returns have averaged 27% in the 2 years following a bear market
An investor who missed the 10 best days of each decade saw a return of 91% in equities, whereas those who stayed invested earned 14,962%
Is now the right time to buy?
Normally, a sharp drop of 30% in the valuation of stock markets would present significant buying opportunities. However, this is not a normal time. It’s worth remembering that we are still in the early stages of this downturn. It is quite likely that we will – even if just temporarily – see further lows over the coming weeks. With markets acting unpredictably and in disorderly fashion, we favour a cautious approach at present. As responsible advisers, we still take the view that ‘timing the market’ is a high-risk gamble and that ‘time in the market’ is the best way to build long-term investment returns.
What are fund managers doing to preserve the value of my investments?
They constantly review the relative weightings across portfolios and consider the latest market developments to continuously assess whether their positioning is appropriate. Whilst monitoring portfolios as a whole, they also constantly review their individual component parts.
** Past performance cannot be relied upon as a clear indicator of future results
Integrity Wealth Solutions are working as an Essential Firm.
As an “Essential Firm” we will continue to have a skeleton staff working at our office dealing with post, telephone and email enquiries. Our remaining staff are now working remotely from home using secure networks, meaning we will continue to be fully committed to supporting our clients as we all navigate through this very difficult time. All telephone numbers and email addresses remain the same and can be found on our website. Our dedicated staff are on hand to help and guide you. We have also implemented the use of GoToMeeting so your adviser will be able to conduct your meetings with the use of video and audio links.
Please don’t hesitate to get in touch with your usual consultant for any further information. Alternatively, you can contact us via telephone on 02476 388 911 or by email to [email protected].