In the face of panic, patience has its rewards

You may have heard about the market declining sharply over the last week which might have resulted in the value of your OUTvest portfolio reducing. Much of this is as a result of global investors reacting to the spread of COVID-19, commonly known as the coronavirus. What seems to have spooked investors most is the rapid spread of confirmed cases of coronavirus all over the world from the first known source in Wuhan, China. Many traders and investors are starting to become nervous and fear the impact of the virus on global trade and are selling equities (shares in companies on stock markets). This is happening across stock markets the world over.

If that weren’t enough, oil prices have fallen very sharply from 60 to just over 36 US Dollars per barrel at the time of writing this article, a level not seen in years. Some investors are now concerned that other producers may not be able to produce oil profitably at this price and hence the share prices of energy companies (like Sasol) globally are being sold by investors. It’s believed that this is as a result of a failed agreement between Russia and the Organisation of Petroleum Exporting Countries (OPEC) to back cuts in production.

What’s happening in the markets?

The value of equity investments, including those held with OUTvest have fallen sharply over the last month. The rand has also been negatively affected by this and at the time of writing was at over R16 to the US Dollar, down nearly 5% over the last month to the 6th of March 2020. Not all of this is bad news for our portfolios, as we do have offshore exposure. Below is a list of selected returns from global asset classes and the CoreShares OUT portfolios.  

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Source: Date is 06/02/2020 to 06/03/2020.  Morningstar provides the fund performance information.   Refinitiv provides the market information, including USD/ZAR. SA Equities is JSE All Share Index, US Equities is S&P 500, Global Equities is S&P Global BMI, Emerging Market Equities is S&P Emerging BMI.

Should you be doing anything?

Yes, you should not be selling any investment right now if possible! In fact it is actually a great time to be investing more to boost your long term wealth creation.

The problem with making very short-term decisions with investments is separating what has valuable information from what doesn’t. At OUTvest we prefer to ensure that the portfolios themselves are sufficiently diversified instead of trying to time short-term marketing movements.

Short term trading is typically called tactical asset allocation and for this to work for investors, the fund manager needs to make two decisions correctly. The first is when to sell the investments, the second is when to buy the investments again. Getting both decisions right and making at least more money than the costs of short term buying and selling is extremely difficult and could leave the investor worse off over the long-term.

As you can see from the chart below, these corrections were not the first, and they won’t be the last. Markets do however generally recover after such corrections and reductions.

Cumulative investment returns for a group of selected equity indices

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Source: Refinitiv provides the market information. SA Equities is FTSE All Share Index, US Equities is S&P 500, Global Equities is S&P Global BMI, Emerging Market Equities is S&P Emerging BMI, Chinese Equities is S&P China 500.

As an investor with an outcomes based objective, it generally is not a good idea to react to short term volatility (noise). You run the risk of selling units at the low point and then buying too late once the market has already recovered.

Our advice is to stick to your investment plan and not to do anything rash. We know, this does not feel right, but we think this is the best tactic over the short term.  

Remember our advisors are only a phone call away if you would like to chat.

Disclaimer: OUTvest is an authorised FSP.  All our investment are exposed to risk and not guaranteed.  Past performance is not an indication of future performance and dependent on the performance of the underlying investments.

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