Scores on the Doors

These numbers make the grimmest of reading with only government bonds and linkers producing a positive return. There are a number of takeaways from the table

  • Overseas funds have produced better returns than UK funds, in part due to the weakness of the pound which enhances overseas returns on translation back to sterling.
  • UK Direct Property looks a relatively safe haven but isn’t, as discussed earlier.
  • Gilts and linkers have produced positive returns, though off their highs of a few weeks ago.
  • Corporate bonds have produced negative returns as spreads (a measure of how investors see the risk of corporate as opposed to government bonds) have widened significantly.

As for market ‘shape’, in such an environment growth and safety (technology and healthcare) have outperformed value and cyclicality (energy and industrials, but also financials who make no money with such a flat yield curve). With so little to cheer at least we can applaud those two old warhorses Trojan and Ruffer whose conservative multi-asset funds with their healthy amount of linkers and gold have stood up very well amidst the conflagration.

What we are doing on Portfolios

We entered this quarter with a steady if lacklustre growth outlook and a  thaw in geopolitics following a truce in the US/China trade war and some resolution on Brexit. We were concerned that valuations were expensive and so were to some extent cautious, though by no means bearish, in our stance. We had some cash on Model Portfolios, a short duration positioning in bonds and an expectation that sterling and the UK would have a better year relative to overseas markets and currencies after three years in the doldrums. If only we could have seen what was coming…

Our strategy in the challenging markets has been:

  • Sit tight until the wild volatility subsides somewhat and there is at least some clarity on the severity of the virus, the policy response from Governments and Central Banks and the long-term effect on global growth and earnings
  • Long term investors should always try to avoid ‘cashing out’ after huge market falls and crystallising losses that cannot be recovered as the markets themselves recover.
  • Don’t try and ‘catch the falling knife’ or be ‘whipsawed’. With substantial one day moves in either direction and sentiment so fragile we do not want to worsen any paper losses on portfolios by poorly timed short-term trading. We need to make considered, maybe substantial, changes to portfolios to ensure we get if right for the new and very different long term
  • Our first move on re-entering the market is on portfolios with high cash balances where we are adding a high-quality investment grade corporate bond fund where we think the extreme widening in spreads offers a good entry point given the lack of default risk in the underlying portfolio holdings.


The markets are performing a balancing act between the spread of the pandemic and the perception of whether the huge policy response will be enough to prevent a massive short term recession turning into something longer and deeper. The next few weeks are critical as we get a sense of whether the lock-down policies in Italy, Spain and France are having an effect as the expected peak of active infection rates is reached. Markets will pay particular attention to the US where the  response has been fragmented and delayed with the risk of a truly dreadful tragedy, something that will find its way into lower stock prices. I entitled my market note of a couple of weeks ago ‘All Things Must Pass’ and in these terrible times this is something I still believe, though with a heavy heart at the human cost.

In a world that is fearful let us be inspired by the love and strength we see around us, count the blessings we have, enjoy the simple pleasures where we can, and try to look forward to the better days ahead. Above all, our thoughts are with you and your families and we wish you all the sincerest of good health.

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