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Market Commentary - 20th March 2020

The support package of £30bn announced at last week’s UK budget provides a good template for others to follow, with measures including a boost to NHS funding, business rate relief, extensions of sick pay and refunds to small businesses to cover the cost of a reduced workforce. Rishi Sunak, this week, went further and added an unprecedented £350bn lifeline to the economy, stating that the government would “do whatever it takes” to support businesses. A credible and coordinated response from governments will be essential in establishing confidence amongst the wider population as well as stabilising financial markets.

World markets have been in panic mode, with daily index moves reminiscent of the financial crisis of 2008.  The immediate concerns are clear.  Thanks initially to the spread and economic impact of the coronavirus and compounded by an oil price war between Saudi Arabia and Russia, world equity markets have fallen between 20% to 30% from all-time highs reached as recently as mid-February, pushing almost all global equity markets into bear market territory.  China remains the exception to the rule having fallen only 3% this year.

These market moves are extraordinary and unseen outside of the structural bear markets of the Great Depression and 2008. We need to recognise both the severity of the moves and the context around them. The challenge is then how to respond.  We know the economic impact will be severe but calculating the extent and duration of the downturn, as well as the recovery, remains near impossible.  Market participants, particularly leveraged investors and computer-driven trading strategies, have chosen to sell first and ask questions later.

The pandemic panic will inevitably throw up some long-term opportunities to buy funds that invest in companies with attractive business models at very attractive prices, which is at the core of what we do. We are also aware that our job is to protect capital from permanent loss, so any action we take on behalf of clients must be carefully considered.

Allocations to gold, UK Gilts, US Treasuries and alternatives (such as infrastructure and absolute return funds) have provided some cushion to portfolio performance in this difficult time.

We entered this period of volatility tactically under-exposed to equities across all our strategies, given that valuations were at all-time highs in mid-February. We will act to reduce funds which have a cyclical tilt and leave the proceeds in cash. Once we have assessed the downside risk to the earnings of the companies we invest in, there will come a time when opportunities present themselves at attractive entry levels, at which point we will have the cash allocation to distribute back into equity risk.

We are expecting volatility to continue and will monitor developments. At this stage, perhaps the biggest advantage we have is that we invest with a long-term time horizon, which in such uncertain times, is of critical importance.

James Hambro & Partners LLP is a Limited Liability Partnership incorporated in England and Wales under the Limited Liability Partnerships Act 2000 under Partnership No: OC350134.  James Hambro & Partners LLP is authorised & regulated by the Financial Conduct Authority.  Registered office: 45 Pall Mall, London, SW1Y 5JG.  A full list of partners is available at the Partnership’s Registered Office.  

Opinions and views expressed are personal and subject to change.  No representation or warranty, express or implied, is made or given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions (but so that nothing in this 

paragraph shall exclude liability for any representation or warranty made fraudulently).  The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.   This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies.  You should be aware that past performance is not a reliable indicator of future results.  Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.

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