As we mark roughly two months since the coronavirus pandemic began to sweep the globe, we wanted to provide an update on our investment activity and thoughts going forward.
Coming into the year, we recognized that although the U.S. and other economies were in pretty good shape, we were likely entering a later stage of the economic cycle. Although expansions don’t have defined expiration dates, we were in the longest running economic expansion in history, and signs of slowing growth were emerging. As a result, we continued shifting positions in portfolios to embrace high-quality companies and segments of the market that typically are less volatile than the overall market. This has provided some downside protection, while keeping portfolios positioned for periods of growth. We’ve also maintained our focus on large, well-established companies located in the U.S., which continues to lead the pack over other segments of the global market. Bonds have also done their job of preserving capital during this year’s downturn.
Here at TRPG, we’ve been hard at work keeping portfolios in balance, which requires extra attention when markets are this volatile.
When investments within the portfolio become too large or small relative to their targets, our sophisticated trading software alerts us to review the account for potential changes. As the market went into free-fall mode in late February and March, most trading activity involved buying stocks and selling bonds. This took advantage of lower prices that resulted as investor sentiment became fearful. Stocks found a near-term bottom on March 23, when the Federal Reserve stepped in with multiple policies to address liquidity and the steep drop in economic activity. As stocks began a fierce climb upward, our buying activity slowed and even turned into some selling as portfolios became overweight with stocks relative to their target.
Although there is optimism regarding a slowing rate of COVID-19 infections—as well as hope for treatment and vaccine development—risk remains, as we face possible additional outbreaks and slower-than-expected economic recovery.
We continue to monitor accounts closely to make sure they stay in balance. Rest assured that we are pursuing opportunities during periods of weakness while proactively addressing any excessive risks that may surface in portfolios. Even though we may see additional pockets of weakness, it’s important to remain invested during these uncertain times. History shows that every downturn has eventually recovered, and reversals can be powerful, often with a majority of the upswing occurring in a few trading sessions. Investors “playing it safe” on the sidelines will likely miss out, potentially leading to irreversible damage to long-term returns and jeopardizing their ability to meet future funding goals.
Looking ahead, our investment committee is focused not only on navigating through the current volatility but also thinking about long-term implications of this pandemic. There will likely be shifts in both company and consumer behavior going forward, so we’ll look for opportunities to position portfolios to the types of companies that may benefit long-term from these changes.
As always, we encourage you to reach out to your advisor with any questions or updates to your financial situation.
Stay safe and healthy!
Kevin Jaegers, CFA
*This post was originally published on April 29, 2020.