Unprecedented is a word much used over the last few weeks, unprecedented market moves, unprecedented world health crisis, an unprecedented financial response from major economies to combat the economic effects of the pandemic, to a greater or lesser degree, all are correct. As most of us adjust to the immediate challenge of working and schooling from home and I sense a new reality, the coming days will give many a chance to pause and reflect on the seismic change in daily routine, longer-term outlook and what the immediate and future work-life balance might look like when we emerge from the shadow of the Coronavirus pandemic.

Economies are reacting very differently to financial measures designed to reduce the impact of the pandemic. What is clear, however is that the European block has yet to provide a fully co-ordinated response and consequently individual markets are not acting in unison. The FTSE 100 is set to slightly outperform some of its counterparts, though this may change and given the fact that the financial package announced by the Chancellor of the Exchequer looks to significantly alter the nation’s finances, this may provide opportunities in both equity and bond markets.

The big driver in the story is the impact that the pandemic will have on the world’s powerhouse, the US economy. With the US approach to the financial support being direct payments rather than furloughs to subsidise pay cheques, the US risks a higher percentage of unemployed than the UK and some of our European partners. The immediate consensus puts the prospective number of unemployed at somewhere between 30 and 50 million. Indeed, over the last couple of days, emerging data shows an increase in those claiming unemployment benefit at around the 3 million mark.  It should be remembered that at least a third of the US economy is driven by gig and self-employed workers and it is likely that the final fallout will be significantly higher. Trump’s view through all of this seems to be that this is an issue that will probably go away relatively quickly and that both health and finance parts of the government are all over the problem and all America needs to do is get back to work and things will be fine.

We do not agree that this is a proper solution to the issue and neither does the medical community both in the US and across the globe. What is true is that in both the US and the UK the current crisis has highlighted the weakness in personal, corporate and national balance sheets and that the robustness of both economies and personal finances are, once again generally, poorly equipped to deal with these sorts of tumultuous events.

The recent sell-off across all asset classes has significantly reduced the value of many if not all portfolios. Some may have seen falls as much as 25% only to see these losses partially recover as markets look to price in the pandemic and work out where the bottom of the market might actually be. At which point, those who are sitting on cash or near cash positions will start to come back in, those that held very cautious positions will also, albeit, to a lesser extent, have been affected.

Set against this, it should be remembered that there is a significant difference between trading which is the day to day buying and selling of securities and longer-term investment which is where our portfolios are focused. Indeed, many of our trusts have a 30 year plus time horizon.

Whilst the consequences of the pandemic have yet to fully be assessed, we continue to run our strategies over the longer term rather than react to violent day-to-day market movements.

Thanks for reading


David de Brito



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