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Insights from The Bellwether Portfolio Management Team

Published March 16, 2020

As many of you will be aware from the heightened media attention, uncertainty regarding the spread of the coronavirus, or COVID-19, and its potential impact on the global economy has led to a material sell-off in global stock markets over the past few weeks. While we do not want to undermine the human tragedy of such an outbreak, we felt it was important to provide some perspective on recent events. COVID-19 is a serious health risk for the world, but so far has impacted a much smaller segment of the global population than the common flu virus, which typically infects 3-5 million people and results in more than 650 thousand deaths annually.

 

Year-to-date, the S&P/TSX and S&P500 (in Canadian dollars) have declined approximately 24.7% and 14.6% respectively. The magnitude of the drop in only a few weeks has been unsettling. From a slightly longer-term perspective, the recent losses serve to reduce the strong returns earned in the last year with the S&P500 advancing more than 30% since the end of 2018. Global stock markets had been on an extended winning streak and were long overdue for a correction—although the magnitude of this decline is far more than normal.

 

For those of you who read our quarterly “Insights” publication will know that we have been gradually lowering risk in our clients' investment strategies over the past several months. First, by reducing the weighting that they have in stocks, in their overall portfolio. Secondly, by shifting some of the client's equity exposure into a new asset class called Real Assets, which invests in global real estate and infrastructure. Clearly, we did not predict the coronavirus outbreak, but we were concerned that some unknown event could come along to disrupt the upward trend in the stock market. In hindsight, such actions have helped to protect clients' investment portfolios during the recent market downturn, and we will continue to monitor the situation closely to see whether further adjustments are required.

 

Although it is too early for anyone to know how COVID-19 will impact the global economy, previous epidemics such as SARS, avian flu, and H1N1 should provide some clues. Health scares typically interrupt economic activity for a number of months before pent-up demand leads to a substantial rebound. Specific industries such as travel and leisure are normally hit the hardest, but China’s growing role in today’s global economy and its importance to the world’s supply chain will likely result in disruption for more businesses. However, governments and central banks in various countries are also poised to follow China’s lead in providing financial measures to support regions that are most at risk. The underlying fundamentals of low interest rates and strong employment continue to support an eventual continuation of the economic recovery and further upside in global stock markets.

 

Such times of increased volatility and uncertainty are never enjoyable; unfortunately, they are a reality for all investors. We have been through many periods like this before and will face many more in the future. The most extreme market downturns may test the resolve of some investors, but we encourage you to adhere to the discipline of a long-term strategy. No one has demonstrated an ability to consistently add value to their investment portfolio by attempting to time the markets, but many investors have done themselves harm. If you have a well-diversified investment strategy with an appropriate combination of fixed income and equity securities to meet your long-term objectives and risk tolerance, you should not be worried about short term fluctuations in the value of your investments.

 

— The Bellwether Portfolio Management Team —

Read our Q4 '19 Quarterly Commentary

Disclaimer

Confidential and proprietary information. The contents hereof may not be reproduced or disseminated without the express written permission of Bellwether Investment Management Inc. (“Bellwether”). Bellwether is registered as: an investment fund manager in Ontario and Quebec; a portfolio manager in Manitoba and Saskatchewan; and as a portfolio manager and exempt market dealer in Ontario, British Columbia, Alberta, Quebec, New Brunswick, Nova Scotia and Prince Edward Island.
These materials do not purport to be exhaustive and although the particulars contained herein were obtained from sources Bellwether believes are reliable, Bellwether does not guarantee their accuracy or completeness. The contents hereof does not constitute an offer to sell or a solicitation of interest to purchase any securities or investment advisory services in any jurisdiction in which such offer or solicitation is not authorized.

Forward-Looking Information. The contents hereof may contain “forward-looking information” within the meaning of the Securities Act (Ontario) and equivalent legislation in other provinces and territories. Because such forward-looking information involves risks and uncertainties, actual performance results may differ materially from any expectations, projections or predictions made or implicated in such forward-looking information. Prospective investors are therefore cautioned not to place undue reliance on such forward-looking statements. In addition, in considering any prior performance information contained herein, prospective investors should bear in mind that past results are not necessarily indicative of future results, and there can be no assurance that results comparable to those discussed herein will be achieved. The contents hereof speaks as of the date hereof and neither Bellwether nor any affiliate or representative thereof assumes any obligation to provide subsequent revisions or updates to any historical or forward-looking information contained herein to reflect the occurrence of events and/or changes in circumstances after the date hereof.

General information regarding returns. Performance is expressed in CAD unless otherwise indicated, gross of applicable management fees. Indicated returns of one year or more are annualized. Past performance is not indicative of future performance.

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