The calamity in financial markets has been widespread across all geographic regions and across all classes of assets. It appears there is no distinction in “quality or time”, so intense has the decline in all markets been.
Shares (international and Australian) have been the most reported, given these are the most liquid and accessible asset markets. Bond values have also been distorted given the twin influences of decreasing interest rates and decreasing credit quality. We fully anticipate that real property will show a decline in upcoming quarters – this is less identifiable in any short-term as the illiquid nature of real property means irregular reporting of value movements.
Gold initially peaked, upon the perception of a safe haven, however moved variously over the past few weeks depending on detail of announcements made by policy makers. Announcements of Quantitative Easing (money printing by national treasuries), market support initiatives and perceived limitations by banks of access by depositors to their funds, all influence a price direction. In other words, gold is unable to provide confidence to investors as a genuine alternative to declining asset values.
The Australian dollar has been decimated in its relative position to most currencies, especially the US dollar. Its difficult to see it progressing much lower from these levels, however.
Early in the volatility process many weeks ago we commenced lightening portfolio positions in the growth asset sectors of international and Australian shares. This was a cautious action as its important to acknowledge that market variations and volatility are regular events. As illustrated below, the charts of both USA shares (as represented by the S&P500 index) and Australian shares ASX200 index from November 2016 through to January 2020 indicates at least two significant drawdown events, the greatest being over 18%, in a three-month period. Yet, overall, for the three-year time period the markets returned 53% and 31% respectively – before cash dividends.
This means it is not reasonable to simply exit growth assets at the early signs of volatility as investors will miss out on recovery opportunities. More prudently, regular progressives sell- downs ensure investors manage risk whilst remaining sufficiently engaged for markets recoveries.
As the decline in asset values accelerated, we acted to continually lighten allocations to growth assets. This has resulted in the significant preservation of investor capital relative to the results of many fund managers and financial advisers.
It is simply not possible to predict asset movements with complete accuracy hence most investment managers and financial advisers encourage investors to “ride through” markets turbulence. We believe our action of lightening portfolio holdings has been integral to protecting investor’s funds.
Current Portfolio Structures
At this point in time, portfolios hold very substantial positions in cash and cash like instruments. We believe this to be the appropriate course as volatility continues.
We remain vigilant in monitoring markets and managing investor portfolios. We anticipate that opportunities to re-enter markets positions will present again at which time we stand poised to participate and further build investor portfolios.
Any questions please contact us on 1300 009 888 or email email@example.com