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How have the portfolios behaved in the CV19 crash

The last three months have certainly seen some panic in the financial markets. We have constructed the portfolios to ride through these storms but how have they behaved in the last three months.

The year started in a fairly optimistic way on the back of 2019 where we saw double digit returns in the portfolios even at lower levels of risk. The rumours of COVID 19 coming from China started to worry the markets and by March we were into a full blown panic. We haven’t seen the market crash so quickly since 2008, when the banking system looked like it was about to collapse. We have seen days where the main markets have dropped by more than 10% and all our reserves of patience and stoicism were tested. The steadfast have been adding money to their portfolios and the vast majority of our clients have now rebalanced and benefited from the low prices.

Looking at the table in Figure 1, we can see that the UK equity markets are down around 25% over the last 3 months and the global market is down just over 15%. The Goodmans portfolio with 100% in Growth Assets is down nearly 24% and interestingly the Sustainable equivalent has held up better with a fall of just under 20%. The average level of risk across all clients is just under 50% and at that level the falls have been around 12% for Standard and 10% for Sustainable. We don’t know why the Sustainable portfolios have been more resilient but a good guess would be that the crash in the oil price hasn’t been felt so much given the screening out of the oil companies.

Figure 1

figure 1-Dec-01-2021-02-54-45-42-PM

Whilst these drops feel scary they are not large by historical standards. Perhaps the speed of the drop and the way in which this situation has affected all of us personally, has made this feel worse than it is. We seem to be bouncing along the bottom but we may be due further falls in the value of shares. No one knows what we face. One way to assess the relative scale of the falls is to look at how the last 12 months compares with the worst 12 month falls we have seen.

Figure 2

figure 2

As you can see the market drops in 2008 were much larger than the current falls. We don’t know how much further the markets will fall but at current levels this crash is looking less severe than 2008. The economic fundamentals are strong and the banks are solid, so once we are through this the world economy should get going again. 2009 was an exceptionally good year for the stock market and maybe we will have a great year of recovery next year.

There is however the chance that the markets recover later this year and this may end up being a short, sharp shock – of course none of us know. I have a feeling though that whatever the markets do, the personal and financial cost in our real lives may linger longer and stick in our memories for a generation. Mitigating those risks are more important than worrying about the portfolios – they have been built to withstand times like these.

Miles Noble

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