May 2020
The COVID-19 pandemic led to a sharp increase in market volatility during the first quarter. Historically, volatility of the extent we just witnessed is extraordinarily rare. This was largely a function of the sharp downward revision to global growth estimates as countries took aggressive measures – in some cases opting for a complete lockdown – to help contain the outbreak. During the most extreme period of market turbulence, there were also legitimate concerns about how the financial system was functioning. Selling occurred indiscriminately as investors looked to raise cash in any way possible. This meant selling what they could, which were often their most liquid and safest positions.
Our portfolios were not immune from the widespread selling. In many cases, some of the positions we felt strongest about – and are confident could weather an economic downturn – got pulled down with the broader market. However, this also led to some fantastic investment opportunities. In some instances, it meant that a security of one of our favourite names was now trading at a sharp discount, allowing us to add to our prior position. There were also opportunities to create new positions in companies where we have strong conviction, but their securities had previously been trading at a price above our assessment of fair value. We strongly believe the actions we have taken in the past quarter will serve you well going forward.
From our standpoint, the policy response to the economic fallout has been encouraging. Central banks have eased monetary policy aggressively, allowing financial markets to once again function in a far more orderly fashion. In addition, the scale of the pending fiscal stimulus globally is without precedent and should provide some much-needed support to individuals, households and businesses.
Looking ahead, it remains to be seen how long current containment measures will be in place. We are hopeful the worst of the pandemic will soon pass, but also prepared for a scenario where it doesn’t. We have made significant investments in technology, which has allowed our team to work remotely without any disruption in activity. This ensures we can best serve you, our clients, while also keeping our staff safe.
I wish the best for you and your family as we all navigate through this difficult period. Please take comfort in knowing we continue to actively manage your investments.
Sincerely yours,
Peter A. Zaltz, CFA
Chief Investment Officer