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Markets Update – Q1 2020

08th April 2020

Markets Update – Q1 2020

By Saftar Sarwar – Chief Investment Officer. Binary Capital Investment Management

“Everyone has a plan till they get punched in the mouth” Mike (Iron Mike) Tyson.

Quoting the legendary heavyweight boxer Mike Tyson in such uncertain times seems odd, however it is apt. The whole framework of capitalism has been ‘shook up’ and effectively under global lock-down. Policy makers have been unconventional in their response to the global crisis taking place around the COVID-19 (Coronavirus) pandemic. “Whatever it Takes” is a phrase that has echoed across the globe over Q1. We have had national fiscal and monetary stimulus. The state of government intervention has surpassed the global financial crisis (GFC) and it is clear that Q2 GDP growth globally and in western economies specifically will show the biggest fall in a generation. We are truly living in historic days, weeks and months. 2020 as a year will be recessionary – we need to discuss how deep could such an economic downturn be. We need to stay calm.

We may be coming towards the peak of the pandemic in many countries. Some countries appear to be exiting towards a gradual easing of the lock-down restrictions. The short-term and long-term implications of the past few weeks will play out for the rest of this year. The sharp falls we witnessed in markets through late February and into March 2020 appear to have eased, investment markets seem to be already pricing in the ‘recovery’ and the ‘new normal’ – this economic recovery could be somewhat hesitant, however markets anticipation of such green shoots is to be welcomed.

Against this background of such uncertainty and difficulties it is pleasing to see that our portfolios have held up well. Our portfolios have tracked similar benchmark returns. We have not witnessed the massive falls in markets. Our Active Balanced portfolio for Q1 was -12.8%, Balanced Sustainable down by a similar level. The Active Adventurous portfolio fell by 6.5%, similar to the benchmark return. A point to note is the performance of all our sustainable funds – performing well with far lower volatility levels than the equivalent benchmark.

A key reason that our portfolios have held up well is that we have a growth bias in the funds and investments selected. Our portfolios are well positioned. Most of our investment funds are looking long-term for earnings and growth in their underlying investments. Investments that have been hit hard in Q1 2020 are those investments which perhaps have more of a value bias: more asset backed, more dividend backed investments – such investments typically we stay away from. We are long-term thinkers and advisers, so we prefer long-term growth investments. We prefer investments that are not too focused on quarterly earnings, dividends, short-term sentiment and volatility.

We will get through this crisis, even if we have to wait longer to realise value in our investment strategies. We are prepared to put in that patient capital mindset, in order to realise such value.  It is in times right now that our skills in doing the right thing, watching monitoring and acting on our judgements, ensuring our principles of having transparent, regulated and liquid investments, comes to the fore. We remain committed to our philosophy and strategies.

By making an investment, your capital is at risk. The value of your investment depends on market fluctuations outside of our control and you may get back less than you invest. Past performance is no indicator of future performance.