We realise short-term and significant falls in your investment balances are unsettling. We’re invested right alongside you on the same terms and we remain committed to communicating as much as we can over the coming weeks and months. To that end we will continue to provide regular updates about the steps we are taking to preserve investor capital, whilst taking advantage of opportunities that the market volatility is presenting.
You may recall our approach to managing market risk arising from Coronavirus is based on three scenarios and in this month’s ‘Slice of Pie’ we said we believed the market response to Coronavirus had moved into the second scenario – an extended period of uncertainty followed by a rebound.
Since then, major global market indices have fallen at time of writing between 21% (NZX50) and over 50% (Borsa Italiana) since market highs on 19 February 2020. The S&P500 is down 27% and the S&P ASX200 is down nearly 26% in the same period. There have been minor rebounds, but the overall direction has been downward. We are now managing portfolios to respond to market volatility consistent with the third scenario – a global pandemic and potential extended period of significant economic and market upheaval.
How are we managing risk and taking advantage of opportunities?
- Hourly monitoring and management of cash and hedging levels, including active profit taking on hedges as markets fall. As we write, hedging and cash levels across our funds average close to 40%.
- Opportunistic buying. The significant selloffs over the past three weeks provide us with opportunities to buy quality companies at significant discounts. See also ‘Exception to SIPO’ below.
We remain comfortable with the companies we’ve selected across our funds with strong balance sheets, low levels of debt and high levels of reoccurring revenues. Companies that are being directly impacted by the Coronavirus i.e. tourism, airlines etc. have been removed from portfolios.
While we look forward to the recovery once the worst has passed and economies revert to growth mode, we will continue to act appropriately to protect investors’ portfolios as the implications of the Coronavirus become clearer over the days and weeks ahead.
The importance of our clients maintaining a long-term focus cannot be understated. Whilst these drops are never enjoyable, they are part of investing and will continue to happen in years and decades ahead. We encourage our investors to stay the course and please contact us if you would like to talk to our team.
Exception to SIPO
To assist with buying into the sell-off we have secured approval from our supervisor for a temporary exception to our Statement of Investment Policies and Objectives (SIPO), to allow us to exceed our maximum number of positions for the following funds:
- Australasian Growth Fund – five additional positions
- Australasian Growth 2 Fund – five additional positions
- Australasian Emerging Companies Fund – five additional positions
- Australasia Dividend Fund – five additional positions
- UK/Europe Growth Fund – five additional positions
We sought permission to increased position limits because we believe it will help us better serve our investors’ interests in two ways:
First, it gives portfolio managers more flexibility to deploy cash into the large and rapidly changing opportunity set created by a significant market sell-off.
Second, it reduces the risk of having to force-sell other holdings – which in the named funds could be small and illiquid – to ‘make room’ for new positions, and likely at prices which would disadvantage you, our investors.
The exemption is in force now. We will review the need for the exception in six months. If market conditions have returned to more normal settings, we will return within the SIPO limits.
Download our funds’ Product Disclosure Statements at www.piefunds.co.nz. This information is general in nature only. Our wealth advisers’ disclosure statements are available on request, free of charge.