During times of such unprecedented uncertainty, some of our investors will be asking themselves what active investment management means under the circumstances and what the investment managers may be doing to manage the impact capital markets are having on portfolio values.
So, just as we all want to know what the Government is doing, we would like to answer your questions as to what the investment managers are doing at this time. By the way, the operations and investment teams remain fully functional with most of the team now able to coordinate work from home if required.
To put management into context, in times of heightened if not unprecedented levels of uncertainty everybody has a significant urge to ‘do something’ – it is human nature to want to fix something if it goes ‘wrong’.
The toilet paper and now general panic buying, against best advice from the government and the supply chain managers, are testimony to this very human notion.
Investment managers and portfolio managers in particular face the same pressure when markets and asset classes embark on a wild yo-yo-like pattern of daily movements. However, even if it runs against the human desire to intervene, ‘doing nothing’ is widely accepted as the best approach to a) preserve the volatility reducing characteristics of diversified portfolios vs. direct stock holdings and b) to have portfolios in a position to act at the point when the wild market swings calm and the biggest buying opportunities arise.
This does not mean that the investment teams are sitting idle. Nothing could be further from the truth. Every day they review the relative weightings across portfolios and reflect against the market developments whether the portfolios’ individual component parts have drifted to a positioning – driven by differing asset class returns – that they deem adequate and appropriate.
While we continue to monitor the portfolio as a whole, we are constantly reviewing those individual component parts. Ensuring that the underlying funds which make up our portfolios perform as we would expect through the prevailing market environment. We would expect the active managers to be taking advantage of the recent volatility in markets, but we want to ensure they remain committed to the philosophies we selected them for in the first place.
With a reduction of stock market valuations of over 30% since their February highs, there are arguably buying opportunities appearing in the equity markets. However, we need to understand and accept that uncertainty over the extent and timing of an economic rebound remains exceedingly high and we are only four weeks into this downturn. It is quite likely that we will – even if just temporarily – see lower lows over the coming weeks.
Trying to ‘time- the-market’ and trade on short term swings is the reserve of the very highest risk seekers amongst investors. Those with a capacity for risk to lose significant amounts of their capital or miss any short-sharp recoveries that long-term investors will capture when they misjudge the sudden turns of disorderly markets and guess wrong. As long term investors, we will not be drawn into ‘gambling’ with client savings entrusted to our investment management as we firmly believe that ‘time in the markets’ will once again prevail, just as it has done during all previous ‘apocalyptic’ looking global crises.