It’s important that you be informed about what is happening to financial markets as a result of the COVID-19 pandemic and efforts to combat its spread. Also of importance is how your investments are affected and how Ashfield is responding to this crisis. In an effort to communicate swiftly, we’ve focused more on content than style in communicating these key points:
WHAT IS HAPPENING IN THE MARKETS?
Investments are being sold in a “flight to safety” in the face of COVID-19’s spread and the containment efforts, which are creating economic disruption and stoppages. So-called “risk assets” such as stocks and low-quality bonds are being sold in favor of “safe” government bonds and cash.
WHAT CAUSED THIS VOLATILITY?
There are a great number of unknowns and lack of data due to the rapid onset of events and escalation of the local, state and national efforts to block the spread. As businesses reduce operations or close, people are asking:
► How will company sales and revenues be affected short-and long-term?
► Will people lose their jobs in an economic slowdown if it lasts more than weeks/months?
The Q1 financial reporting cycle by companies has not yet started, and early projections have been scarce. All of this fuels uncertainty and concern. Additionally, people’s own fears about the pandemic are being expressed emotionally in the stock market. Parallel historical periods in our experience include the aftermath of September 11th and the 2007-2009 bear market, when the public was experiencing shock, confusion and anxiety until there was more information upon which to make a rational evaluation.
One fortunate circumstance has been that this is occurring during solid economic times, allowing some cushion to help us deal with the current economic shock.
WHAT IS ASHFIELD’S RESPONSE?
Contingency plans and investment strategies made during market calm should not be abandoned in the face of market fears, even though it might be the most difficult challenge to overcome. We therefore commit ourselves to not overreacting in response to news of the hour and instead remain focused on facts and financials, a strategy proven during prior crises.
There will also be opportunities for action on items within our control, and as these emerge, we will take full advantage.
WHAT SHOULD INVESTORS DO? WHAT ARE THE OPPORTUNITIES?
There are things investors can do to take control and create value:
1. Make beneficial portfolio changes
Buy stocks unnecessarily taken down with the market – identify and buy good companies at great prices (discounts) to create a better portfolio for the longer term.
2. Realize Tax Losses
Swap out of positions trading below their tax cost basis, “booking” the loss with a sale and simultaneously purchasing a substitute investment to remain invested. Utilize these realized tax losses to:
► Allow you to sell different stocks at large unrealized gains with no tax
► Offset personal income up to $3,000 current tax year
► Carry losses over into future years until you need them
3. Above All… Remain Calm
► Attempts at market timing (calling market tops and bottoms) are very difficult.
Source: JP Morgan
► In the long run, stocks trend upward and are superior investments, despite the bumps and periodic bear markets:
► Be sure you have adequate resources for your immediate goals, and beyond that, exercise patience and keep the discipline of your investment strategy
WHAT CAN WE EXPECT MOVING FORWARD?
The risk aversion and flight to safety we are experiencing might not abate for weeks or longer. We cannot say with any certainty when the market will recover and buyers again prevail, but it will eventually happen.
The Federal Reserve Bank of the United States has initiated emergency measures to keep the financial system operating and has provided assistance to other central banks globally so there is not a financial system crisis. Meanwhile, Congress is negotiating financial relief for individuals and small businesses to assist them on a short-term basis.
China and Korea have already seen new cases level off, and those societies are gradually returning toward normal. Someday, this will be a distant memory, whatever timeline that follows.
You will hear more from us as events unfold, and please know you are welcome to reach out to us by email or phone at any time to discuss your questions or concerns. Above all, please comply with health guidelines, stay healthy, and we will beat this crisis together.
This communication has been prepared solely for informational purposes, based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading strategy. If any offer of securities is made, it will be pursuant to a confidential offering memorandum, an investment management agreement or other offering materials, which contains material information not contained herein and which supersedes this information in its entirety. This communication is not designed to be a comprehensive analysis of any topic discussed herein,and should not be relied upon as the only source of information. Additionally, this communication is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions. Additional information is available upon request.
The investments discussed herein are for illustrative purposes only and it should not be assumed that such investments were or will be profitable or that the investments or recommendations Ashfield Capital Partners makes in the future will be profitable or will equal the anticipated results discussed herein. Past performance is not necessarily indicative of future results. The indices, markets and countries referenced in this communication are provided for informational purposes only and should not be used as the basis for making an investment decision. The indices, markets and countries referenced in this communication are included merely to show the general trend in the markets in the periods indicated and are not intended to imply that the underlying returns were comparable to the indices, markets or countries either in composition or element of risk. There are significant differences between client accounts and the indices, markets and countries herein including, but not limited to, risk profile, liquidity, volatility, and asset composition.
The benchmarks referenced are included to reflect the general trend of the markets during the periods indicated and are not intended to imply
that the underlying returns were comparable to the market indices either in composition or element of risk. There are significant differences between client accounts and the indices herein including, but not limited to, risk profile, liquidity, volatility, and asset composition.
The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks chosen for market size, liquidity and broad industry group representation within the U.S. economy.