The asset manager for a changing world

Denis Panel summarises our asset allocation views and Richard Barwell dicusses the factors that, we believe, investors should consider over the coming weeks.

How do you see the situation after the events of the last week? What is your assessment of the outlook?

Richard: The coronavirus will administer a severe and sustained shock to the global economy. Unfortunately, it looks as if the public health emergency will get worse before it gets better. In the last 24 hours, we have seen the governments in India and Australia introduce measures to isolate their populations and shut down the principal sectors or their economies. There is no doubt we are dealing with an unprecedented global health emergency.

Inevitably, there’s considerable uncertainty around exactly how the public health crisis will evolve. It’s difficult to determine either how serious it will be from a human point of view and how long the economic disruption will last.

However, we do think the unprecedented policy response we saw last week from central banks will help to turn the tide in financial markets.

What we saw last week appears, to us, to be a ‘whatever-it-takes’ mentality among central banks in terms of their willingness to socialise the economic cost of the virus.

We have been struck by how quickly policymakers have responded with, in some cases, radical solutions being envisaged. For example, we already have the prospect of central banks financing the deficits that will result from state-sponsored economic support measures.

In Europe, we may well see moves to issue joint eurozone bonds and then channel the funds to the countries most in need of funding.

These are radical policy measures that, in our view, suggest policymakers are shaping up to meet the size of the challenge.

From an investment standpoint, we now think there are opportunities for long-term investors to gradually buy assets that have experienced significant price falls as markets abruptly priced extreme outcomes. Indeed, the extent and scale of last week’s selloff leads us to be fundamentally constructive on the outlook for risky assets.

 

How have your investment teams been reacting to events of the last few days?

Denis: Our teams are organised across different locations using video conferencing to coordinate and manage our clients’ assets during this exceptional situation. The teams have an intense focus on risk management, but we remain alert to the opportunities that can arise in a volatile environment.

Our approach is being guided by the following principles:

 

So how are these views expressed in your asset allocation?

Denis: We are positioning portfolios to be broadly in line with the following strategies:

The active risk in our portfolios is currently around 50% of our target, so we have only marginally increased our equity overweight exposures in an environment of higher volatility.

 

What factors do you think investors should be taking into account over the coming weeks?

Richard: Our view is that there are four elements investors should take into account in their assessment of the crisis:

In sum, we are fundamentally constructive about the outlook for financial markets, although we expect markets to remain volatile until there is more visibility on the development of the public health crisis.

Our view is that policymakers will meet the challenge the crisis poses and they can turn the tide in financial markets.