07 May, 2020

What’s happening?


  • Poor economic data continues
  • Some markets have bounced back strongly…
  • Others continue to struggle


Focus on building better prepared portfolios


  • Reaction, resilience, resolution
  • Better prepared portfolios


What’s next?


  • Countries and some US states are beginning to open economies back up
  • Watch companies, not economic data, to gauge strength of global recovery


What’s happening?


Despite the global number deaths from Covid-19 continuing to rise and economic data still disappointing, many financial markets are beginning to bounce back – but not all:


  • US equities had a strong April and have made back more than 50% of their Covid-19 losses[1]
    •     Technology stocks buoyed much of the US gains
    •     Central bank action to support businesses is giving investor confidence
  • High yield rebounded, but value remains[2]
  • Commodities, hampered by the poor oil price, continue to struggle[3]
  • Many emerging market countries cannot financially support their economies, leading to significant issues and a lack of investor confidence


Building better prepared portfolios


Being prepared when a crisis hits can make a significant difference to the outcome of your portfolio, and they will continue to occur. Three key questions to be asking:


  • Reaction – what is going to be the reaction of your portfolio to events beyond your control?
  • Resilience – is your portfolio and governance structure resilient enough to withstand the shock?
  • Resolution – can you react to seize opportunities and be positioned for when markets recover?


Better prepared portfolios


  • According to our internal preliminary figures, we have saved clients trading costs over recent weeks by employing what we believe to be “smart execution techniques” to our own in-house platform
  • Our higher governance portfolio – spanning 16 asset classes – performed 2.2% than equities in Q1 2020, and with less risk[4]
  • We have conducted 600 meetings with managers to check what is driving their strategies and verified their investment processes are being maintained
  • By March 31, 2020, 64% of our active portfolios had beaten their benchmark over the last five years[5]


What’s next?


Countries and some US states are beginning to open back up to ease the strain on their economies. However, you may want to watch companies, rather than economic data, to gauge strength of global recovery.


Italy continues to concern, with a greatly increased debt-to-GDP ratio. Watch how relations with the rest of the European Union plays over the next few years – and how Italy handles its debt.


[1] Bloomberg, 4 May 2020

[2] Bloomberg, 4 May 2020

[3] Bloomberg, 4 May 2020

[4] Mercer and StateStreet, May 4, 2020. Allocations for the high governance portfolio are based on the strategic asset allocation for Mercer’s model growth portfolio as at 31 March 2020.
Performance and risk is based on Mercer’s model growth portfolio returns over Q1 2020. Returns are in GBP terms, net of all underlying management fees, gross of Mercer's fee, net of all other costs including custody and administration.  Performance has been compared against the MSCI World ACWI Index  for indicative purposes only.

[5] Mercer and Databank, May 4, 2020

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