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A COVID-19 update from Parmenion Investment Management

2019 Review

For financial professionals only

The COVID-19 situation has suddenly become very real. What started as an outbreak in China three months ago is now having a direct impact on how we live in this country. And given the spread of Coronavirus and the measures now being taken to contain its impact, it is not surprising there is great uncertainty about the economy and its prospects. After a long bull run, recent stock market falls have been unsettling to say the least.

However, it is important to remember that stock markets have faced similar difficulties before. The chart below highlights a number of downturns, in recent memory. The oil crisis in the early 1970’s when oil prices quadrupled in a short space of time was a shock to the world economy, but it recovered. The terror attacks of 9/11 had a dramatic impact but again, there was a recovery. And finally, the Great Financial Crisis of 2007-08 was akin to a heart attack to the world’s financial system.

Dimensional

(Source: Dimensional, 2020)

The reaction this time around is due to Coronavirus can be classified as a “known unknown”. We know what it is and its effects, what we don’t know is how long it is going to last. That means forecasts of company profits, sales and earnings have become difficult.

It is times like these, some people react emotionally and even panic.

Parmenion’s investment team take a more rational approach.

Firstly, it is difficult to time the markets, and falls happen more frequently than we think. According to charting the 40 years between 1979 and 2019, the US market dropped by more than 10% within half of those years, and more than 15% for a third of those years. And yet themarket was up over the calendar year for 33 of the 40 years (Dimensional, 2020)

Secondly, it is important to have a long-term plan that meets your financial goals. Integral to that is taking on the risk that you are prepared to accept, as this will determine your long-term returns.

All our investment solutions at Parmenion offer 10 Risk Grades. Each Risk Grade is a combination of assets that offer diversification and a volatility (risk) range. In rising markets, the Risk Grades are expected to rise sequentially, and fall in the same way when markets turn south. In the graphs below, the PIM Strategic Multi Option solution is shown since its inception in 2009 and over the last 3 months. All the Risk Grades are behaving exactly as we would expect.

The present time is difficult on many levels, but it is important to take a long term view and make sure that your clients are comfortable with their risk tolerance. That’s what will determine their long term returns.

Further reading on Coronavirus (COVID-19) 



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