By: Gerrit Smit
There is no good reason to believe that history will repeat itself
Gerrit Smit is Head of Equity Management. He manages the Stonehage Fleming Global Best Ideas Equity Fund.
The fear driving markets since February is due to a kind of dread that history will repeat itself. Investors worry that we are in the depth of a recession to rival the Great Depression or the kind of downturn that followed the Global Financial Crisis. But we believe circumstances are very different this time and that there are some signs most of the extreme fear may well be behind us.
Faced with the coronavirus pandemic and the very hard measures taken by governments to control its spread, we have all suffered a terrible shock over the past weeks. Financial markets have too. As sentiment plays an important role in investing, it is unsurprising that fear has recently been the major driver of markets. Although investing on fundamental principles requires a cutting-out of noise created by the pervading panic, it is important to try to gauge market sentiment and establish why things might be different this time.
During the Great Depression, the US Federal Reserve was actually the major problem. It employed a tight monetary policy, raising interest rates throughout the crisis, which, with hindsight, was exactly the wrong thing to do. With the gold standard at the time there was a huge flight to gold, which caused the collapse of the dollar and many other issues besides.
Currently, the opposite is true. Rather than being the problem, the Fed today is a major part of the solution. Having adopted a wartime footing, it is pledging to do all it can to ensure liquidity and prop up the economy. Although a recession cannot be avoided altogether, the approach might, with a fair wind, limit the damage and support a recovery.
Fears that today’s situation shares similarities with the recession that followed the Credit Crunch also seem misplaced. The deep problems then were due to a liquidity crisis created by a flawed banking system, which has since been reformed. Today, in contrast to previous crises, because it is about human health and life, the responses from governments and central banks have been incredible, making huge amounts of liquidity available where it is needed, at an unprecedented speed.
Compared to a few weeks ago we now have more information about better diagnostic testing, more testing capacity, potential anti-viral drugs and a number of vaccine results holding some promise. We now also know that social distancing measures are effective in flattening the infection rate. We also know that if a second wave occurs, the market and authorities are pretty well informed of the risks we face and are in a better position to consider clearly how to manage the situation.
It is largely due to this increase in information and a greater understanding of the risks that the worst of the fear, it seems, may be over. Our own capital market measures indicate that we are around three quarters of the way through the worst fears associated with the pandemic.
Assuming that sentiment has found its floor, investors should keep their eye on the horizon rather than the immediate economic outlook. Although there may be a stop/start period in getting economies going again, we think the direction of travel for the global economy towards the end of the year may well be in a positive direction.
Historically recessionary periods have proven to be good times to invest, not to disinvest (as those who are fearful may wish to do). For us, the current environment is not one of buying the so-called market. Rather it is an environment of very active stock selection, selecting only high quality businesses and being very careful with your choices and considerate with valuation.
I am reminded of Howard Marks’s quote: “You cannot predict, but you can prepare.” Not many of us can foretell exactly what will happen with the issues related to the virus and the economy but we believe we should be invested and can prepare by owning the right quality businesses.
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All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing.
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All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing.
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All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing.
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QUALIFIED INVESTORS
1. According to Art. 10 Para. 3 of the Swiss Federal Collective Investment Schemes Act (CISA), Qualified investors are considered:
a. Regulated financial intermediaries such as banks, securities dealers, fund management companies as well as asset managers of collective investment schemes,
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d. Companies with professional treasury departments;
e. High net worth individuals,
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2. According to Art. 6 Para. 2 of the Swiss Federal Collective Investment Schemes Ordinance (CISO), in particular Art. 10 Para. 4 CISA, qualified investors are also considered:
Independent asset managers and investors who have entered into a written asset management. agreement with independent asset managers to the extent that:
a. The asset manager as a financial intermediary is subject to the Money Laundering Act (MLA) of 10 October 1997 (Art. 2 Para. 3 lit. e MLA);
b. The asset manager is subject to a professional code of conduct which is recognized as a minimum standard by the supervisory authority, and
c. The asset management contract contains the recognized guidelines of a professional organization.
3. A high net worth individual is someone who can confirm in writing that they directly or indirectly have net financial investments of at least 2 million Swiss francs.
* Financial investments are bank assets (demand or time deposits), fiduciary assets, securities (including collective investment schemes and structured products), derivatives, precious metals as well as life insurances with a replacement value.
* Direct investments in real estate and claims from social insurances (including claims from the 2. and 3. Pillar), are not considered financial investments.
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* The advertiser or provider of the collective investment scheme must review the existence of the required financial investments if there are doubts as to whether the person qualifies as a high-net-worth individual.
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All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing.
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All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing. This information is not directed at any US person or any person in the US and the information does not constitute an offer or solicitation to buy or sell shares or units in any Stonehage Fleming fund to any US person or to any person in the US.
The following pages contain information on collective investment schemes (both local and foreign) that have been approved by the Financial Sector Conduct Authority (FSCA) for distribution in South Africa, in accordance with the Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). The information and materials have been prepared for information purposes only and do not constitute a personal recommendation or advice or a solicitation to buy any product or service. They do not take into account the financial circumstances, needs or objectives of the recipient. In addition to the information provided, you may wish to consult an independent professional adviser.
All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing.
I confirm I am accessing the website from the country indicated.
All investments risk the loss of capital. The value of investments may go down as well as up and, for products designed to return income, the distributions can also go down or up and you may not receive back the full value of your initial investment. No guarantee or representation is made that the funds will achieve their investment objective. The material on this site does not constitute legal, tax, or advice on investments. If you are unsure about whether a fund meets your requirements, then you should seek professional financial advice before investing. This information is not directed at any US person or any person in the US and the information does not constitute an offer or solicitation to buy or sell shares or units in any Stonehage Fleming fund to any US person or to any person in the US.
The following pages contain information on collective investment schemes (both local and foreign) that have been approved by the Financial Sector Conduct Authority (FSCA) for distribution in South Africa, in accordance with the Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). The information and materials have been prepared for information purposes only and do not constitute a personal recommendation or advice or a solicitation to buy any product or service. They do not take into account the financial circumstances, needs or objectives of the recipient. In addition to the information provided, you may wish to consult an independent professional adviser.
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