Welcome to Taking Stock

The impact of COVID-19 on investment portfolios and strategies to consider.

May 13, 2020

4 minutes

The impact of COVID-19 on investment portfolios and strategies to consider.

By definition, black swan events are not signposted. Few could have predicted the mayhem that 2020 would usher in.

With an estimated one third of the world’s population under lockdown and many regions closing their borders, the impact of the coronavirus (COVID-19) pandemic has been unprecedented. This human crisis and the associated demand shock coincided with the Saudi Arabia- and Russia-led oil price war and subsequent collapse in the oil price. Market weakness itself then became the third shock, with liquidity drying up as investors desperately sought to raise cash and de-lever.

These three shocks combined to result in the massive price action and dislocation across all asset classes, sealing a quarter that is one for the history books. The numbers reveal the magnitude. The S&P 500 Index experienced its fastest sell-off in history, shedding 30% in 22 days. This is only comparable to two other times in history – the start of the Great Depression in 1929, when it took 31 days to fall by 30% and the Black Monday stock market crash in 1987, when it took 38 days.

Over the first quarter, global markets, as represented by the MSCI All Country World Index, fell 21.3% in dollar terms. The rand shed a staggering 27.7%. The only silver lining to that dreadful number would be if you had had some exposure to offshore equities. The rand weakness translated into a 9.9% return from global equities in rand terms. The All Bond Index ended the quarter 8.7% weaker, but it lost 10% for the month of March, its worst month in history. The Moody’s downgrade of South Africa to ‘junk’ status on 27 March clearly put further pressure on our domestic bond market. The All Share Index mimicked global markets, ending the quarter down 21.4%.

Unsurprisingly, many investors panicked and scrambled to the perceived safety of cash and fixed income assets. When looking at the flows in the collective investment schemes industry over the last two months, it is clear that people either moved wholesale into money market funds or into bond funds. The big losers over the quarter were the multi-asset high equity and low equity categories.

What should investors be doing? Ultimately, the holy grail in this environment is a calm client, a good independent advisor and an experienced asset manager. Ideally, the investor who could lay claim to this combination would have had their portfolio structured correctly for their long-term outcomes and would therefore be doing nothing. The problem is that with so much going on around us, it is psychologically incredibly difficult to do nothing.

For you as advisors, it is important that you keep communicating with your clients so that they know you’re thinking about them. Importantly, be sure not to change a good plan based on short-term market shocks.

Short-term market shocks

Useful support for the argument to stay invested is an article in this issue of Taking Stock by Paul Hutchinson, in which he researched the last eight global crises, and the returns you would have generated if you had stayed invested (even if you had chosen the worst possible time to invest), versus switching in and out of the market.

We believe it is in times like these that experienced asset managers should stand up and be counted.

We are pleased with our performance across our range of funds. Key to providing these outcomes in our equity and multi-asset funds was that we were largely invested in very resilient businesses with strong balance sheets, while in our flagship Ninety One Diversified Income Fund, our portfolio managers demonstrated that they could stay true to the fund’s mandate to ‘participate and protect’. Despite the All Bond Index losing 8.7% over the quarter and many peers ending in negative territory, the Ninety One Diversified Income Fund posted a small yet positive return. Our Quality range of funds, which includes the Ninety One Cautious Managed, Opportunity and Global Franchise Funds, also showed resilience, continuing to provide dependable returns for investors.

While the market rout would have dented most investors’ pockets, pensioners dependent on their living annuities for income are potentially the hardest hit. We have fielded many questions around living annuities, and in this issue of Taking Stock, Jaco van Tonder addresses some of these concerns.

I would like to end this note with a quote from a letter by Hendrik du Toit, our CEO:

“On 1 April, Ninety One entered its thirtieth year, a year that will be remembered for the demerger of our business from Investec Group, our successful listing and rebranding, and for COVID-19 and the market reaction to the lockdowns across the world. Challenging times.  

“Ninety One is a business that thrives in periods of change. We are energised by the part we have to play in making sure that the world gets back to work, both as stewards of your capital and as a responsible corporate citizen. To do that, we will continue to focus on our primary role as capital allocators, supporting businesses in their hour of need as investors, while contributing towards national fundraising efforts in support of the battle against COVID-19. It is time to act rationally and calmly in the interests of all our stakeholders.“

Remember, we are in this with you. Together.

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Authored by

Sangeeth Sewnath

Deputy Managing Director

Opening - ready or not!

Jeremy Gardiner – Lockdown and the ‘new normal’. ...

Important information

All information provided is product related and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Ninety One Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at www.ninetyone.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, RMB, 3 Merchant Place, Ground Floor, Cnr. Fredman and Gwen Streets, Sandton, 2196, tel. (011) 301 6335. A feeder fund is a fund that, apart from assets in liquid form, consists solely of units in a single fund of a collective investment scheme which levies its own charges which could then result in a higher fee structure for the feeder fund. The fund is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. Ninety One SA (Pty) Ltd is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA).

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