May 4, 2020: Live from the desk of our CIO, Piers Bolger

May 4, 2020: Live from the desk of our CIO, Piers Bolger

May 4, 2020: Live from the desk of our CIO, Piers Bolger 150 150 Piers Bolger

Well here we are at the end of April and pleasingly it was a good recovery for equity markets, both domestic and global, during the month of April after what has been incredibly difficult first quarter to 2020. Our domestic equity market was up just under 8.8% for the month, while global equity markets were also up just shy of 11% over April.

If you look at the domestic side of things, those sectors that really struggled during March, particularly energy and retail, both had a solid rebound over the course of April. The energy sector was down around 37% during March on the back of the sell-off in the oil price, while the A-REIT sector was down roughly around about 35% during March. Both those sectors had a solid recovery – the energy sector was up around about 25% over the course of April and the REIT sector was up close to  were rated close to 15% over April.

Even though we’ve seen that recovery, our view is that market performance is going to continue to remain relatively challenged throughout the months of 2020 and certainly into into 2021. Even though we’re a couple of trading days into May, it has been a pretty difficult time so far.

It got us thinking about market performance and the ability to be able to time investments with markets, which in our view is inherently difficult and it’s fraught with danger. Our strategy is all about managing through a period of time in regards to the company portfolio standpoint. Even though we’ve had a nice solid bounce in April, we probably wouldn’t have predicted it. Certainly, we weren’t of the view that April was going to be a an upward month given what we saw in February and March. Equally, the economic data that was coming through indicated it was going to continue to result in a challenging period for equity markets, but the exact opposite occurred.

We haven’t changed our medium term view in regards to the outlook for equity markets. There are opportunities and we still are looking to selectively invest. But it does show that when you’re trying to time financial markets without a strategy be you can inevitably miss out on the upside. Worse still you’re always trying to chase that historical performance.

So we’ve put together a chart that highlights some of the challenges of market timing it.


When you try to do it, it can be a very costly and negative outcome over the course of time. This chart gives you a snapshot of the ASX 200 from December 1992 all the way through to the end of April this year.

The bottom bar chart shows you that if you were fully invested throughout the course of that period you would have made 9.3% return. If you tried to time the market and you missed the best performing days starting at missing the best 20 days all the way through to missing out on the best 50 days, you can actually start to see significant deviation in the overall level of investment performance. If we take the extreme case or missing the best performing 50 days across that twenty seven year period, your return would have gone from 9.3% to about 1.5%. If you try to invest to time the markets you miss out on getting it right.

In the context of what we’ve seen in April, you can’t really manage a strategy in terms of the underlying risk. If your broad strategy hasn’t changed, you should try and remain as invested as possible and I think the month of April is just a good reflection of that.

We continue to expect that financial markets remain challenged over the next six months at least, and potentially to 2021. But it doesn’t mean that we’re not looking for those opportunities. From a portfolio standpoint, it’s important to remain invested, think about your objectives, manage the risk and don’t lose sight of your long term strategy.

As always, if you have any concerns about your portfolio, please reach out to your advisor.

Piers Bolger is Chief Investment Officer at Viridian Advisory

This post and some supporting materials may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we may have given you, having regard to your own objectives, financial situation and needs before acting on it.  Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.
 
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