Coronavirus and the market: our take

-- | 11/03/2020

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Andrew Lill is Chief Investment Officer, Americas, for Morningstar Investment Management LLC.

Andrew Lill: Once again stock markets are dominating the headlines, as concerns about the economic impact of COVID-19 draws the focus of investors from the long-term horizon to the here and now. Recently, the OPEC nations are preparing for potential oil-price war, which has added to the uncertainty in markets desperately looking to recalibrate fundamental implications. In these situations, it is prudent to ask how your investment manager is responding and, on an individual basis, to consider what should be your response.

It is natural for us as humans to react to alarming headlines and to panic when events such as this outbreak occur. However, we believe that taking a more measured approach and longer-term perspective is critical at this time. Crucially, the trick for investing success is to generally go against the crowd.

This chart takes us back to March 2009 and the bottom of the current bull market and imagines three investing paths--1) stay invested in the light blue, 2) stay out of markets before investing back in one year later in the darker blue--and in green, staying cash completely.

It seems to be a time in the cycle again where we need to be very careful in our actions. The temptation to seek shelter is behaviorally natural but often results in adverse outcomes.

Our message is simple--keep your eyes over the coronavirus horizon and fixated on your investing goals. Invest smart and often, letting the power of compounding and dollar-cost averaging take you steadily close toward your goals.

We leave you with three key takeaways.

1. Market volatility is normal but nonetheless unsettling. The fourth quarter of 2018 was less than 18 months ago, when the U.S. market fell by 20 per cent. In most cases, market corrections are healthy and create the mechanism for prices to better reflect fundamentals and allow the next phase of the market upturn.

2. Rebalancing is our usual practice after large price movements to maintain the target asset allocations in our portfolios. The recent price moves have caused us to rebalance most of our multi-asset portfolios by selling bonds and buying back into stocks, taking us towards our dynamic medium-term targets.

3. We are continually assessing buying opportunities brought on by the declines, but most asset classes and stocks haven’t yet lost enough to become attractive to move to an overweight position.

We will continue to keep investors abreast of our actions and research, but until then, we hope you found this insight useful and insightful.



This report appeared on 2021 Morningstar Australasia Pty Limited

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