Hi,
Thought I would share some observations regarding our portfolios and strategy given the current sell off.
As the coronavirus spreads, investors have sharply sold stocks, anticipating a slowdown in economic growth and companies’ earnings. The S&P 500 index has been hammered in the past week and is down -13% since its peak. However, it is important to keep an eye on the long term. Being invested over the past 11 years has reaped huge rewards. Here are returns for some key indexes:
|
|
Since Market Peak |
Since 12/31/19 |
3-Year Return |
5-Year Return |
Since 3/31/09 |
|
Barclays US Aggregate Bonds |
1.02 |
3.03 |
14.99 |
18.37 |
57.47 |
|
|
|
|
|
|
|
|
S&P 500 Index |
-13.20 |
-8.80 |
31.83 |
54.54 |
361.85 |
|
|
|
|
|
|
|
|
S&P Small Cap 600 Index |
-11.44 |
-11.75 |
10.83 |
35.79 |
365.02 |
|
|
|
|
|
|
|
|
MSCI EAFE |
-7.36 |
-8.09 |
15.82 |
13.71 |
140.44 |
|
|
|
|
|
|
|
|
MSCI Emerging Markets |
-6.58 |
-7.44 |
18.27 |
17.26 |
134.88 |
|
|
|
|
|
|
|
|
FTSE NAREIT |
-8.70 |
-3.44 |
24.34 |
40.57 |
493.64 |
S&P 500 is up 361.8% since April of 2009. Over the past 5 years this index is up 54.5%. We do not believe in going to cash when things look bad (as they do now), because missing the top 5 up days in the market over the past 15 years drops your total return by over 30%. When market volatility spikes (like now) the worst and best days are clustered together. Frequently good news happens over the weekend or overnight and markets open up a significant amount, so it is hard to impossible to successfully trade around news driven these ups and downs.
For generating long term wealth, the best option is to have an investment plan suited to your long term goals. There are times every year when the markets sell off and usually, though not every time, recovery quickly. The coronavirus is a serious concern and no one knows how long it will last. However, any shutdown used to slow the virus’ spread will be temporary and the economy will recover. The stock market will anticipate this recovery. Any positive news that the spread of the virus is slowing, government stimulus to offset the slowdown or positive announcement that shows things are not as bad as feared, the market will rally quickly.
For diversified investors, good news is that diversification is helping.
· Quality bonds have rallied sharply this year and are up 3%. We own quality bonds because they lower portfolio risk and tend to have positive returns when stocks fall (like now).
· International stocks are off less than the S&P. Even EM stocks which includes stocks in China are down less than stocks in the US. Perhaps this difference is an indicator that the US markets are selling down based on fear rather than fundamentals.
· REITs are down less than US stocks as yields have been supportive
· While the S&P 500 is down -8.8% this year, our growth portfolio is down -4.9%.
Looking at sectors YTD, energy is down -25% which is by far the worst performer. The best performers are have been the defensive sectors of utilities (-.5%) and consumer staples (-5.8%). Though not traditionally a defensive sector technology is down only -4.3%.
We are diligent to watch for signs that the coronavirus is affecting:
· Travel and tourism
· Consumer spending and confidence
· Energy prices
· Government stimulus plans
· Effect of a slowdown on highly levered companies both in US and China
· Slowdown in private equity and private debt markets
YTD, our Focus Equity composite is 20 bips ahead of the market. The recent outperformance of utilities and underperformance of our travel related stocks has hampered otherwise good relative performance in a down market.
The sharp action in stocks has created some opportunities to improve the portfolio. We are currently reviewing new names and considering adjusting weights. Given US bond yields have fallen dramatically, we may look at repositioning fixed income securities, once yields have settled.
Hope this information helps. Please let me know if you have questions.
Thanks,
John
John R. Ingram CFA
Chief Investment Officer
Partner
Direct: 617.226.0021
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109