Last night the UK Government upped its action against Coronovirus by recommending not going on non essential flights, not going out to pubs and restaurants and self isolating if you are over 70, among many other things.

The EU countries in the Schengen area are closing down their borders and we are in very difficult times.

Last week we saw the largest ever one day fall in the UK stockmarket since 1987 on Thursday following on from Mondays -8% fall due to an oil crisis. Tough times indeed.

News is essential and the main news channels only ever talk about the UK stockmarket and sometimes the US, especially if news is bad. They never talk about the other sectors such as gilts and bonds which tend not to fair so badly in these sorts of times.

Below is a chart of the main sectors people invest in from the start of the year.

These figures are from the start of the year and show how badly the UK All Companies Index  has fared being down -26.91%.

UK Gilts have risen by 6.46% and Global Fixed Interest by 3.91%.

Most of our clients are invested in balanced portfolios that will have some or all of the above in differing amounts and percentages to attempt to smooth out the extremes of the market. But if you have some equity exposure, which most people have, you will suffer some short term losses.

As a proxy for all portfolios the next chart shows the Vanguard range of portfolios that we have used a lot in the last few years. They have either 20%, 40%, 60%, 80% or 100% equity exposure and on the MPA Risk Profile they are a 3,4,5,6,7 respectively.

As you can see the year to date figures range from -4.04% to -23.80%.

The majority of clients are in 5 which is 60% equity and shows a loss of -14.35% since the start of the year.

The above chart shows the same portfolios over 3 years and shows the extent of the losses due to the virus. Again the 60% equity portfolio, which is the 5 out of 10 on risk, is just in positive territory.

Many people over the last few years have invested in the Prudential PruFund which is a smoothing investment that takes away the daily rise and falls of markets.

The chart below shows the Vanguard range against the PruFund over the last 3 years.

As you can see the PruFund has held up really well so far and as I always say there is always some light when all around is pretty black. Please note that there are no guarantees with this sort of investment and the share price may fall in the future.

10% Letters

New regulations that came in about 18 months ago by the EU mean that if a discretionary portfolio falls by more than 10% from the valuation at a previous quarter date then you have to be informed within 24 hours of this happening. If you are invested within a full discretionary portfolio with Brewin Dolphin for instance then they will write to you. If you have a model portfolio with Brewins or Vestra, bought through Standard Life or Novia we will inform you.

It only relates to that portfolio and if you have money invested via a pension or investment bond then the regulations say we don’t have to inform you.

What you do with this information is another thing. My advice at the moment is to sit tight and ride it out as much as possible.

What to Do When the Investments Drop

Assuming your portfolio has a balance of equities, bonds and alternatives my advice is to hold tight and ride it out. History shows that after 2008 Financial Crisis equity markets recovered fairly quickly. As a friend of mine said yesterday, ‘They don’t ring a bell when we hit the bottom of the market’ meaning, only hindsight will tell us when we are there.

If clients have money in cash there are some opportunities to buy funds at these very low prices, but the risks are it may fall further. During 2008 there were times when we bought a fund/portfolio and sold it when it made a 5% or 10% profit and banked that which helped.

If you need money out in the short term, try and take the money from funds that have fallen least such as bond funds so that when equities bounce back you are still in the game to take advantage of that bounce.

What Are MPA Doing to Protect Clients?

We take the health of our clients and employees very seriously and so we are introducing these measures as of today.

• The office will remain open with a skeleton staff with some employees working from home and we will have a rota system organised with the administration team.
• We have banned meetings within the office to protect against the spread of the disease.
• The telephone system will continue to be operated either from the office or remotely and we can all be contacted via the office number.
• We will publish regular updates to the website (mpafm.co.uk/news) regarding our current views.
• We are starting to have video meetings with clients and obviously email is the easiest form of communication at the moment.

I hope everyone remains safe and free of this hideous disease and if you have any concerns please do not hesitate to contact your Adviser.

 

Phil J McGovern FPFS

17^th March 2020