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Join ETF Securities as we partner with Australian and international investment professionals to discuss the latest market and economic issues and what this means for investments. You’ll find the latest videos and articles on this page, or subscribe using the purple subscribe button on the top right hand side of the page to receive the weekly updates.

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ETF Securities Partner Series: Investment Ideas for 2021
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ETF Securities Partner Series: Growth vs value in uncertain times

What are the blue chips of the future?

May 28, 2020

Blue chip is synonymous with quality and dividends in the mind of the Australian investor, but are the companies considered as the blue chips of today likely to remain as the blue chips of tomorrow? The ability to generate a consistent dividend stream has been a mainstay of those companies we deem blue chip but in the wake of COVID-19 related dividend cuts, does the Australian view of blue chip need to evolve? Kanish Chugh, co-Head of Sales at ETF Securities, discussed the future of blue-chip investing with Peter Green, Head of Listed Products for Lonsec Research and James Gerrish, Portfolio Manager for Shaw and Partners and author of investment newsletter, Market Matters. Defining a blue chip investment “Blue chips have been in the past large size, industry leaders, well run and in the Australian context, very much also looking at dividends and fully franked dividends. So, we’re talking companies like the big four banks, Telstra,” says Mr Green. The top 20 companies listed on the S&P/ASX 200 have often been treated as a default blue chip index and this provides an interesting demonstration on the evolution of blue chip investing. Only 20 years ago, the top 10 constituents of the S&P/ASX 200 were filled with banks, telecommunications and even news media, with Telstra topping the list [1]. While the list of today is still heavily dominated by banks, there’s a few we might not a have predicted in the past such as Australian biotech leader CSL Ltd or supermarket companies like Woolworths or Wesfarmers. Mr Gerrish finds it interesting that CSL Ltd has joined the definition of blue chip. “It’s moved the needle from thinking about dividends underpinning blue chips to more towards stocks that are delivering really strong absolute returns. So blue chip to me is something that’s reliable, generally large, robust, a leader in their industry,” he says. Both see this movement towards a view on absolute return as a trend for the future. “Increasingly blue chip is being equated with a quality style. A quality style looks at things like ROE growth, EPS growth, large investment in intellectual property and also low leverage,” says Mr Green. Dividends and blue chips COVID-19 may be driving the trend towards viewing blue chip investing as about absolute return in Australia. Investors have had to start to reconsider their understanding of blue chip investing and their strategies in the wake of many companies, including traditional blue chip investments in the form of the big banks, cutting their dividends. In this instance, we may be starting to move towards the way the US or Europe view blue chip investing. Mr Gerrish says, “The S&P 500 back in the early 1900s[2] had a dividend payout rate of about 90%. Every 90 cents in every dollar was paid out as dividends to investors. Now the S&P 500 has a dividend payout rate probably around 30%. So, the bulk of those earnings are being reinvested into future growth, and that's why you see those growth orientated companies sort of rise to the top overseas the way the market's set up. And that's probably one of the reasons why it's been outperforming a bit over Australia at a rate of one and a half times.” By contrast, he notes that the Australian market has dividend payout ratios of around 75%, slightly skewed in the current environment but overall a traditionally high ratio. Mr Gerrish sees the focus on dividends as having hampered the growth of companies in Australia. “Afterpay for instance in 2016 had a market cap of about $165 million and are an $11.5 billion dollar company now. Telstra at that same time was around a $60 billion company and it’s now a $34 billion company. They invested in growth dividends along the way but examples like that start to change investment mentality,” he says. That’s not to say that we’ll see the current blue chips disappear. “There’s always going to be a role for the big four banks and Telstras in portfolios. I think people are increasingly aware of the total return of investing but this is more of a focus on capital growth than income returns. Over time, that sort of earnings growth will lead to dividend growth as well,” says Mr Green. Turning to Asian blue chips Mr Green notes that the composition of Asian markets has seen the rise of different blue chips compared to Australia. “Asia certainly is showing strong growth in the tech sector but also we’ve seen in Asia, you’ve got the rise of the middle class there. So, when you look at the financials and consumer discretionary sectors there, they are a large part of those indices and they have much greater EPS growth trajectory compared to the Australian context, just because of those demographic factors that are driving those stocks and earnings,” he says. Consumers have embraced technology across Asia, with blue chip companies like Alibaba and Baidu a prime example of this . {Note: these companies are included in the ETFS FANG+ ETF (ASX code: FANG)}. Both Mr Green and Mr Gerrish find including international blue chips is an important way of diversifying their clients’ portfolios, particularly given the dominance of financials in Australian blue chips compared to internationally. They’ve used direct investments or ETFs depending on client needs. An example of an ETF focused on Asian blue chip investing is the ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) which invests in the 50 largest and most liquid Indian domiciled companies. The future of blue chip investing Mr Green views the future of blue chip investing as linked to some of the rising global themes. “I think the market is really taking a good, hard look at things such as we’ve just seen with COVID-19, all of a sudden, we’re working online and this happened quite seamlessly. The whole idea of the digital economy is a very interesting area. We spoke about Asia before and the rising middle class and also what they’re calling the fourth industrial revolution, the automation, the AI, the machine learning,” he says. Some of companies following the trends might not be blue chips now but could be down the track, such as Afterpay. Mr Gerrish notes payment platforms have huge potential. “We’ve got the incumbents, these being Visa, Mastercard which are really dominant over in the US, but I think there’s other kinds of payment platforms that are interesting… You need to wait to see what companies get to that point of reliability of earnings before they become a blue chip,” he says. Interested in investing in the trends of the future? Learn more about our future present range of ETFs here or contact us. Sources: [1] https://www.spindices.com/documents/education/education-marking-20-years-of-the-sp-asx-index-series.pdf [2] While the S&P 500 began in 1957, the S&P Weekly Index has been used as a substitute for earlier years.

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ASX update: COVID-19 - transforming the investment space

May 20, 2020

COVID-19 has been responsible for significant changes in the way we live and work, but it is also influencing the ways we invest. After significant volatility in March, Australian markets posted gains in April with the S&P/ASX 200 returning 8.7%, the largest monthly gain in its history. Investment activity increased too, with even largely dormant investors returning to the fold[1]. Kanish Chugh, co-Head of Sales at ETF Securities, spoke to Anastasia Anagnostakos, Business Development Manager in the Investment Products Division of the ASX, on her views about how COVID-19 is changing the investment space. Changing investment behaviour Activity in April has been a contrast to the fears and defensive activity seen in March, as investors responded to global lockdowns and market volatility. “Last month, we saw a flight to safety through precious metal ETFs or broad-based market ETFs, whereas this month, investors, rightly or wrongly, are reading into the signs of a recovery, with Australian equity and property ETFs being the main beneficiaries, both being up by almost 12% on the month,” says Ms Anagnostakos. On the flip side, oil was a particular concern in April with prices becoming depressed and the futures market even turning negative for the first time. While the type of investments sought has switched, the volume of activity generally has remained high. According to ASIC, average retail trading increased from $1.6bn pre the COVID-19 crisis to $3.3 billion at the end of April 2020[2], with many dormant accounts recommencing trading activity. Ms Anagnostakos says, “in terms of the ETF market, a usual day, pre-crisis, accounted for about 4% of total trades on the S&P/ASX 200, but during this time it has ballooned to about 10% of total trades.” Trading on conviction Ms Anagnostakos believes that this increase in activity comes down to an increasingly aware and educated retail base compared with the past. “Many investors have learnt from our most recent crisis, the GFC, such times often present a good price point to buy into the market, and have been doing so with long-term and short-term ideas in mind,” she says. According to Ms Anagnostakos, the ASX has noted an increase in shorter term trade activity on a retail front, with the cash equities market one such area which has experienced trading spikes, along with commodity and geared funds. In terms of the cash equities market, an example of investors trading based on expectations is through the US dollar, which some anticipate strengthening compared to the Australian dollar. There are a range of ways to trade for exposure to the US dollar, from cash holdings to using ETFs such as the ETFS Enhanced USD Cash ETF (ASX code: ZUSD), and many such corresponding investments may have experienced activity increases in April. Some activity in investor demographics such as retirees may be a response to the change in the status quo. That is, their dependence on fully franked dividends for an income which is under threat in the current environment. “With the big banks either deferring or cutting their dividends altogether in their most recent announcements, one of the most common discussions advisers are having with their clients is about mobilising capital within their portfolio to sustain their income streams… so these kinds of discussions we have with advisers are around the different income options that are available to them via the ASX investment products through the vast amount of fixed income ETFs, fixed income and private credit LICs, LITS available for steady income flow,” Ms Anagnostakos says. A more diverse market in crisis While the GFC and COVID-19 crises are vastly different events, the increased trading activity in this situation may also be related to the broader and more diverse investments available this time around. “You just have to look at the sheer size and the growth of the ASX product suite just to see how many different options are now available to investors. Let’s look at the market at the height of the GFC, June 2008. There were only 198 products for investors to choose from after buying individually listed companies on the ASX. As at the end of April 2020, investors have over 614 products to choose from, on top of all the individually listed companies on the ASX. So you could most definitely say that investors are spoiled for choice these days,” Ms Anagnostakos says. As an example, the Australian ETF market was barely existent during the GFC, with only 19 available in December 2007 compared to the more than 211 now available on the ASX[3]. Ms Anagnostakos notes the increase in ETF trading activity during this crisis may be in part due to their ability to offer diversification. “If you want to diversify and lower your overall portfolio risk, ETFs are a classic way to do this as they are a pure beta play. If you believe in the long-term direction of certain asset classes, strategies, sectors or geographies, and they represent good value to you in this crisis, then investors can seize the opportunity to invest in and potentially lower their overall portfolio volatility, while still achieving good long-term returns,” she says. Some slowdown in product launches Despite the increased April activity, there has been some slowdown in the issue of new products on the ASX, with only one new investment product released in April. Ms Anagnostakos suggests it is too early to determine whether the pipeline of ETFs coming to market has really slowed down but in the case of LIC or LIT investments, it has made more sense for issuers to delay given the volatility in asset prices. On the whole though, she believes this is an unusual time so a slowdown in new products wouldn’t be entirely surprising. Ms Anagnostakos says, “there’s volatility because people are working from home, which is another reason that we may not have seen any products made…. And it might be safe to say that issuers in this space will be wanting to see some stability before bringing some new products to the market.” To find out more about investing with ETFs during COVID-19 or the ETF Securities Partner Series, please contact us.

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India rises to the COVID-19 challenge

May 13, 2020

India is poised to be an economic superpower, benefiting from structural factors such as business reform, income growth, urbanisation, domestic consumption and demographics. Tipped to be the world’s third largest economy by 2035[1], India holds appeal from a business and investment perspective. The COVID-19 pandemic has changed the outlook in many global economies but the challenges may only be temporary for India. Kanish Chugh, co-Head of Sales at ETF Securities, spoke to Kinjal Desai, Fund Manager Overseas – Equity for Nippon India Mutual Fund, on her views about India and the COVID-19 challenge. Managing COVID-19 With a population of 1.3bn, some commentators may have expected COVID-19 to ravage India but its infection rate has so far remained low compared to its population size. The Indian government was swift to enact measures[2] including: - travel ban and quarantine measures for returning travellers - total lockdown from 24 March 2020 - financial relief package of INR 1.7tr[3] - monetary relief with interest rate cuts from the Reserve Bank of India (RBI)[4] Current modelling suggests, if the ongoing lockdown continues to be implemented effectively, by July 2020, less than 0.01% of the Indian population is likely to be infected[5]. Further stimulus may be announced to support small and medium sized enterprises, as well as harder hit industries like aviation, hotels and tourism. Challenges and opportunities in lockdown While lockdown has created challenges for the economy, Ms Desai notes certain sectors have been able to continue to function. “There are certain sectors which have functioned, I would say quite well given the circumstances, which I’m looking at FMCGs, staples, telecom, pharma, power and utilities… Over a slightly longer term, I would say that it is the consumer discretionary sectors, which is your auto, durable goods, capital goods sectors which will… perform better but they have taken a very bad hit now,” she says. Ms Desai suggests focusing on individual players in each sector which may be positioned to gain in this environment. “The companies which have a strong balance sheet are the ones which are going to gain market share… We’ve seen how telecom have been, and how banking has done better over NBFC [6],” she says. Reliance Jio Infocomm Limited (Jio) is an example of a telecommunications company which was positioned for growth before the pandemic and has apparently continued to benefit. It is the largest telecommunications operator in India with a mobile subscriber base of 370 million and 35% market share (as at December 2019)[7] . Facebook recently announced it has purchased a 9.99% share in Jio, announcing a potential collaboration with WhatsApp[8]. The broader global environment has also created opportunities for India across the pandemic period, with oil prices at extreme lows. “India is actually the third largest oil consuming economy in the world, just after China and the US, and we are dependent on imports for 80% of our oil needs… we’ve seen [oil prices] come down by almost 60%, this has presented India with an amazing opportunity to store and build reserves. Indian companies have actually procured almost 7 million tons of oil, which is 20% of our annual needs in these low prices,” says Ms Desai. Has the pandemic changed India’s outlook? India was on track to be one of the next economic super-powers prior to the COVID-19 pandemic, so investors may wonder how the pandemic has influenced its prospects. Ms Desai views the COVID-19 pandemic as an external event, with the structural factors behind India’s growth prospects still favourable. She points to India’s demographics, low private sector debt, domestic demand orientation and low reliance on foreign demand as a structural advantage over peers like China and other emerging markets. “There are various factors which have pointed towards a steady recovery in growth. First, there are clear signs that private capex has started to pick up. This was reflected in our domestic credit growth which had remained subdued for quite a few years. But now we are seeing it sustainably growing. Secondly, like I said, the RBI was actually in the midst of a rate-cut cycle in 2019. And apart from this, the central bank has also been very proactively supporting the economy with domestic liquidity this will finally lead to transmission of these policies, lowering of policy rates to real life lending rates,” Ms Desai says. She also sees an additional opportunity for India from the COVID-19 pandemic. “This COVID-19 pandemic can actually be a turning point for the global supply chain… which is currently highly concentrated in China, and India can be a huge beneficiary of this shift. Global Investors are definitely looking at India to rise up to this opportunity and take this leap ahead,” she says. The US-China trade war had seen a number of multinational companies consider moving operations to India. The combination of the COVID-19 pandemic, and resurgence of tension between US and China in a pandemic ‘blame-game’ may see many businesses take a more serious approach to rebasing their operations. Is now the time to invest in India? Global uncertainty may be putting off many investors, but for some, now could be the time to revisit their investment strategy around India. Ms Desai says, “the valuations have become very attractive since good businesses are available at decade low valuations. The current time is very uncertain, but our long-term fundamentals continue to remain intact.” The longer-term opportunities for India remain. Ms Desai points to the demographics of India, skewed younger compared to peers, which offers benefits in terms of a large working base easily able to support growth through taxes and consumption. Consumption and income growth are also factors driving India’s growth. “India is a hugely unpenetrated market compared to global average and that provides enormous opportunity. Again, an example is penetration of video goods has just begun to expand as we come close to that $2,000 per capita [income] mark. Experience from other countries suggests that discretionary consumption, your cars, white goods travel all improve exponentially once you cross the two to $3,000 per capita income mark,” Ms Desai says. She also notes that financial literacy in India has also been improving as incomes have grown, with a benefit to the financial services industry. Those considering exposure to India in their portfolio could consider an ETF like the ETFS Reliance India Nifty 50 ETF (ASX code: NDIA) which covers 50 of the largest and most liquid Indian domiciled securities. [1] https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/India/Market-profile [2] https://www.thejakartapost.com/academia/2020/04/19/indias-response-to-the-covid-19-pandemic.html [3] https://home.kpmg/xx/en/home/insights/2020/04/india-government-and-institution-measures-in-response-to-covid.html [4] https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=49582 [5] https://timesofindia.indiatimes.com/india/lockdown-till-may-31-can-stall-coronavirus-pandemic-says-study/articleshow/75653149.cms [6] NBFC refers to the Non-banking financial crisis in India. You can read more in https://www.etfsecurities.com.au/idea/individual-investors/the-three-key-drivers-of-indian-performance-in-2019-5e5d8ff76d22670017b30dc8 [7] https://www.mobileworldlive.com/asia/asia-news/reliance-jio-widens-lead-as-profit-soars/ [8] https://techcrunch.com/2020/04/21/facebook-reliance-jio/

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Active investing with passive funds

May 06, 2020

The debate between active and passive investing has always been contentious but has taken an interesting twist in recent times. Some investors have sought a ‘best of both worlds’ approach by using passive investments in an active way. So, what does it mean to invest in this way, and does it work? Kanish Chugh, co-Head of Sales at ETF Securities, spoke to Nazar Pochynok, Financial Adviser at Bell Partner Creations and Andrew Wielandt, Managing Partner for Dornbusch Wealth, on Active investing with passive funds. Taking an active approach Normally when investors think of passive or active, they think of very specific investment products. Passive investments are defined as those which follow rules or a methodology to automatically follow an index or benchmark with the aim to “match the market”, while active investments are discretionary, meaning they are made based on a fund manager’s research and philosophy. “The way we use active management is a little bit different. We use it from a risk management perspective of looking at how to change the dynamic asset allocation of our passive portfolios,” says Mr Pochynok. He primarily uses passive investments like ETFs in his portfolio to offer cost-effective access to particular assets and markets. Mr Pochynok says, “nothing in passive is truly passive. Everything is an active decision. For example, the underlying constituents of companies and the relative benchmarks they track from ETF to ETF really does differ. Do you choose an index that is cap-weighted or equal-weighted? Should the index have style factors incorporated, such as quality, size, momentum and volatility? All these decisions are not submissive. And they're very much active manager thinking more so in a cost-effective and simple-to-use strategy.” Is passive really passive? Passive investing has become increasingly popular in recent years as it offers liquid cost-effective exposure across the market or to specific assets, sectors or themes which may otherwise be difficult to access. Despite this, some negative connotations have still lingered, namely that passive investing offers “passive performance” and that you need to “pay for performance”, that is, pay higher fees for active management to generate returns. The historic data suggests this view is a fallacy. Mr Wielandt points to research conducted by Standard & Poor’s over 18 years. “The 29,000 data sets basically [show] that if you’re trying to be active and outperforming the market, you’ve got a 95% chance of failing. And of the 5% that succeed, if you look at them over the next five years, only 5% of the 5% will succeed,” he says. This research is supported even by recent data. “One of the SPIVA reports for last financial year, so take away COVID, also suggested that in 2019, for the financial year, almost 93% of active managers underperformed the ASX 200. And that number also persists at 83% underperformance over three years and 81% underperformance of the index over five years,” says Mr Pochynok. This isn’t to say there isn’t a place for active investments, but rather investors should be selective in using them and seek to identify those consistent performers. Passive with active overlay for clients The switch to using passive investments in an active way reflects a change in attitude for advisers as well as their clients. Mr Wielandt says, “two years ago I would have said that we were more just choosing direct equities…But certainly over the last eighteen months we've been far more using ETFs and passive ETFs and, as you're saying, sort of using ETFs in a passive tool in an active manner…There's some difficult conversations happening with clients that have got this direct equities focus, that have got that mindset. That was a 1990s mindset. 2020 today, and it's about total return. It's about broad asset allocation and terrain. You're using passive tools but in an active manner.” He notes that the Australian market is behind global counterparts in terms of how it’s using passive investments like ETFs but will get there eventually, following the path of countries like Canada with a similar environment to Australia. The choice to use passive investments in an active way will continue to be something investors and advisers grapple with across the coming years. For Mr Pochynok though, it has been a simple decision that comes back to the value proposition he offers to his clients. “Looking at it from a macro perspective, the real value that advisers bring is solving big rock problems for clients, and making their lives simple, efficient and providing them with effective solutions,” he says. From his perspective, using passive investments to allow him to focus on active risk-management and client goals is a natural fit.

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Dividend Cuts and COVID-19, what it means for income?

Apr 30, 2020

The effects, impacts and dislocations of the COVID-19 pandemic have been felt very heavily in the investment markets, and the fluttering of the black swan’s wings has certainly disconcerted income-oriented investors. The Australian addiction to dividends As interest rates ground lower in the 2010s in the wake of the global financial crisis, typical income strategies based on bonds became harder to justify. Income-seeking investors were effectively forced up the risk curve, toward corporate bonds, high-yield bonds, cash-generating real asset investments, and the share market. In particular, the income aspect of share dividends – turbo-charged by Australia’s dividend imputation system – became a major attraction, with effective yields in the 6%–8% range readily available. For this, investors had to accept several facts: one, that the dividends cannot be considered certain until they are paid; two, that dividends are paid at the company’s discretion, and can be cut at any time – even abandoned; and three, that they bore the capital risk of the share market. Finding yield in new areas In 2020, as COVID-19 became a fact of life, all three of these facts have forcibly reasserted themselves; particularly the capital risk. The danger in holding ANZ Bank, for example, for the dividend yield, might have seemed largely dormant – until it was halved in price inside a month. “As interest rates have come down over the past decade, we've had to change the way that we look at income; it's become quite driven by growth assets,” says Angela Ashton, founder and director of managed account provider Evergreen Consultants. “Having the central part of a portfolio with respect to income production in growth assets like property or shares introduces a lot more risk, unfortunately for clients, but that's the way you need to generate income today,” says Ashton. While some of the “traditional buckets” that have produced income in the past are under pressure, Ashton says there are opportunities in areas such as diversified credit, some of the Australian REITs, some of the Australian and US ETF equity-income products, and high-quality Australian shares - particularly consumer staples names such as Woolworths, healthcare stocks and infrastructure stocks. Seeking a new growth story Jamie Nemtsas, director at independent financial advisory firm Wattle Partners, expects income-conscious investors to take a more ‘total-return-oriented’ approach going forward. “High income is generally more risky, and ‘sustainable growth’ looks less so at the moment, if you think in terms of total return. You might be looking at a regional building company in New South Wales that has got a strong dividend, on paper; but it’s going to be far better to hold something like Google that has got a massive audience, low cost of capital, great balance sheet, and you're sacrificing some kind of regular income for a very, very strong company.” In this strategy, Nemtsas says, the investor is looking to “harvest” capital gains, and put them back into an income-producing bucket. “A growth story like CSL, you can sell portions of that holding, for years, and keep putting it into cash. Then you have another stock – it might be Amcor –that is trading sideways, price-wise – but it’s generating income.” Rebalancing and portfolio management It simply comes back to rebalancing, he says. “Say you have 5% cash, 10% fixed-income, 30% Australian equities, 20% global equities, and 35% real assets. If you rebalance regularly, and your Australian equities has moved to 34%, you ‘harvest’ that 4%, and put it back to cash. Your capital gain is constantly being converted into your ‘core’ capital, which we like to have sitting there as effectively three years’ worth of cash needs.” Nemtsas agrees that areas such as consumer staples, healthcare stocks and infrastructure stocks – and what he calls “fallen angel” sectors like travel – offer good opportunities at present. “There are also some great opportunities in credit, particularly in the ‘distressed credit’ space. “We’re looking at a range of individual investments, some stocks, some ETFs, particularly where we think they’ve been oversold, to set up portfolios for the next few years,” he says. “We’re getting the opportunity at the moment to build portfolios totally differently than we were eight weeks ago. But we’ll stick to that rebalancing strategy – sell those that go up, keep those that go sideways while yielding income. And think in terms of total return, not in terms of maximising your income return,” he says.

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Is COVID-19 the market correction “we had to have”?

Apr 22, 2020

The ETF Securities Partner Series joins with Australian and international investment professionals to discuss the big issues of the day and what these mean for investors. It may not be surprising that market volatility has soared since the COVID-19 pandemic hit, but could this also be, to misquote the famous line, the correction ‘we had to have’? We spoke to James Whelan, Investment Manager at VFS Group, Michael Ogg, Director at Providence Wealth and David Lane, Director – Wealth Management at Pitcher Partners on whether we should have expected the financial impact of COVID-19 and what comes next. An overdue correction At face value, COVID-19 has been responsible for immense uncertainty in markets (even aside from what it has meant for daily life), but there’s more to the story. “COVID-19 was the trigger for valuations to adjust from inflated levels rather than the cause. Valuations ultimately matter and its never obvious what the trigger may be,” says Mr Ogg. Long before Wuhan and COVID-19 started to hit the news, many had begun to wonder when the record length bull market would come to an end, and whether that time was now. Mr Lane says, “We had been concerned about the general level of equity markets for some time and had been anticipating a market correction.” From that perspective, many investors may have adjusted their portfolios in anticipation, but it is unlikely anyone could truly have been prepared for COVID-19 and the dramatic influence it has had. “You can’t prepare for a Black Swan event (which this most certainly is) and you can’t expect one every day otherwise you’ll never be in the market. The situation with this event, as with most major calamities, is that ‘correlation goes to 1’” says Mr Whelan. He notes the equity and bond market selloffs were expected investor behaviour in the face of uncertainty, but markets have also faced further challenges from the oil war, physical workplace disruptions and global interest rate cuts. Managing volatility While it is hard to create a portfolio to avoid every possible event to befall markets, investors can consider basic investment principles as an important tool to manage volatility. “Diversification of portfolios and avoiding highly geared expensive assets provides some protection for portfolios in an unforeseen event,” says Mr Ogg. Mr Lane holds a similar view to geared assets and says, “Leverage is one of the main reasons that investors (or traders) become forced sellers, and their returns can be magnified in the current markets.” Further to this, he says, “While there are always reasons to adapt to the current circumstances, a key element to being successful as an investor is to maintain a long-term core strategy.” How a diversified portfolio looks willvary according to the investor. Mr Whelan’s portfolios include “local and international fixed interest and bonds, thematic ETFs picked by our proprietary algorithm, tactical stock selections, protected dividend strategies and cash which is tailored to our client’s needs and risk tolerances.” Finding the right time to buy Some investors use volatile markets as a buying opportunity so may be wondering if now presents the right time to buy. All three experts are wary of picking the bottom. “One thing that never changes is human behaviour and the switch between fear and greed. It’s impossible in the current environment to form a view of what earnings may look like so trying to time entry points in equity markets is, at best, just a guess.” says Mr Ogg. Mr Lane agrees, saying, “the focus has shifted from earnings to balance sheet…Almost all expectations of revenue, earnings and dividends can no longer be relied upon. Everything needs to be rebased… Companies with low financial leverage, quality assets and sustainable business models will be the ones to survive.” This isn’t to say there won’t be opportunities, but the traditional measures investors may have previously focused on won’t necessarily be right for the current environment. While strong balance sheets are one key factor, Mr Whelan suggests long-term themes, including those stemming from the COVID-19 pandemic, can be valuable. Mr Whelan sees a new world order from COVID-19 that will open doors for certain companies. “We, as a planet, now have the template for what to do in a repeat event. Borders up, quarantine, work from home, order online, consume content from home. That will be (by default) the new way of life. We’re focusing on stocks and sectors that will assist that new way of life” he says. What next? Final words of advice “Be patient, do not panic and stay healthy,” says Mr Lane, offering a perspective for dealing with all aspects of life today. Mr Ogg suggests to those tempted to tweak their finances, “don’t try and be a hero, make sure that within asset classes you have quality and ensure you have enough liquidity to ride through the storm.” On the note of investment opportunities, Mr Whelan’s advice was as follows: “Get a plausible picture in your head of what the world looks like after this thing is done. Factor in the potential end of globalisation and even cheaper money at an unpayable debt. Think about what the average home and workplace will look like…Invest accordingly and don’t look at it every day.” If a new world is coming and markets were overvalued before, perhaps COVID-19 was indeed the correction “we had to have”.

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