Portfolio Management Service, market volatility and coronavirus

There are many unknowns with coronavirus. We do not know how successful different approaches to contain or slow its spread will be. Nor can anyone accurately predict the extent of the economic impact, or the effects on individual companies. Governments and central banks taking action will hopefully provide an economic stimulus but decisions such as restricting travel will dampen activity.

Thus far the Bank of England, US Federal Reserve and the Reserve Bank of Australia have cut interest rates to stimulate growth. We have also seen fiscal spending used to support impacted individuals and businesses. These measures are welcome and can reduce some of the economic impact of coronavirus, but they won’t cure us of the virus itself.

What does this mean for the Portfolio Management Service?

There’s a risk in making snap decisions, such as selling equities and adding to fixed interest, or vice versa during such volatile times. This is because the greatest one day rises have tended to be experienced around the same time as the greatest falls, although there are no guarantees this will be repeated. Very few fund managers can show, over a career, they've added value for investors in trying to aggressively time the market.

Given the stock markets’ long-term upward trend, being out of the market carries its own risk. We feel a measured and humble approach to asset allocation is best.

How we invest your money

We rarely take big ‘bets’ on the market level. We spread your portfolio across a range of different investment types, and we try not to hold too much of one type at any time. To control this we have tight pre-set ranges that we aim to stick to, which depend on the risk our clients are willing to take.

If equity markets jump, we tend to take some profits to stop the higher-risk proportion of your portfolio getting too big. We trimmed the equity component of portfolios several times in the last three years as markets rose, switching to areas we felt offered better value or greater shelter.

The market could bounce if there's positive news on the virus, government fiscal or monetary action or if investor sentiment turns. If it does, we're comfortable with our current positioning. If things get worse, the Multi-Manager funds are in a strong position to deal with day-to-day flows.

Fixed interest funds have performed well compared to equities this year and we can take profits on these assets and add to our equity holdings when we feel it’s right to do so. At the time of writing it’s still unclear what the final political and human reaction will be. As such, we’ve chosen not to add to our equity weightings now but given the level of volatility this could change at short notice.

We also saw the Budget announcement on Wednesday.

Find out more and read our views