Marketing Update – The Coronavirus

Marketing Update – The Coronavirus

Key Developments

  • Global deaths surpass 2,800, with more than 82,400 cases
  • China death toll at 2,744, up 29; cases climb to 78,497, up 433
  • First U.S. case of unknown origin; Pence in charge of response
  • South Korea cases rise, U.S. urges travelers to reconsider trips
  • Saudi Arabia suspends travel for religious pilgrims (umrah)

(Source: Bloomberg, 2/27/20)

Summary

Over the past several months since its discovery, we have seen headlines around the Coronavirus met with a muted market response. However, during the most recent weeks, markets have become more nervous as the virus has spread to other regions beyond China, including Korea, Italy, Middle East and the U.S.

We have received many questions from clients asking about the impact of the virus on market and our impression of its effect on investing. Although we cannot may any predictions with respect to the severity of the market’s short-term reaction to the Coronavirus, nor to the potential for losses to specific investment portfolio, Wahed continues to adhere to the the tested philosophy of investing with a long-term time horizon and cautions against reactionary responses to market sell-offs in attempts to time the the market.

Attempting to strategically liquidate and reinvest portfolios during periods of short-term sell-offs may negatively impact client returns because it is difficult to predict the extent of the declines and the timing of the market rebounds, which are often sharp. As the chart below shows, missing the market’s best performing days, due to an attempt to time investments, can adversely impact overall performance over the long-term.

Source: Putnam Investments (12/31/19)

Our Portfolios

Stock markets have erased year-to-date gains, and all portfolios are now slightly negative for the year. However, by broadening our scope we observe that markets are still up over +27% since the beginning of 2018, +39% over the last 3 years, +64% over the last 5 years and +258% over the last 10 years (Source: SPX Index on Bloomberg as of 2/26/20).

Additionally, our portfolios have exhibited the volatility we expected in designing them; namely, the more aggressive portfolios had the biggest swings, while our very conservative portfolios exhibited much more stability. Gold has also performed quite strongly, functioning as the safe haven hedge in portfolios.

Takeaways

We would like to remind clients that Wahed’s investing philosophy is one of long-term, steady investment. Upon opening an account, a risk profile was suggested according to your unique time horizon and needs. If any of those parameters have changed, clients are able to toggle risk profiles to a portfolio that is expected to exhibit lower volatility, as well as lower returns.

For everyone else, historical trends suggest that staying the course and not allowing short to medium term volatility to alter investment strategies results in more positive outcomes. Although past market results are no guarantee of future outcomes, nor that more long-term, corrective markets will not come to pass, reactionary responses to sell-off markets can also have its pitfalls. A rational and balanced temperament can be as valuable as a high investment IQ.

“We’re buying businesses to own for 20 or 30 years. We buy them in whole, we buy them in parts … and we think the 20 and 30 year outlook is not changed by the coronavirus…”

-Warren Buffet

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