Coronavirus: a different world but the same demands

  • Sion Cole

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

It feels like a lifetime. In fact, it’s been only four months since my last blog, but so much has changed. Coronavirus has impacted every aspect of life.

The virus has been devastating and lockdown strategies across the globe have brought challenges to almost all of us. It’s brought professional challenges to our fiduciary management team, too, with markets moving like never before, testing the resilience of clients’ portfolios to the max.

Although the world has changed, our clients’ objectives and responsibilities to their members haven’t. Neither have our mandates.

Working from home we’ve acted nimbly and strategically, using every tool at our disposal.

The service we offer you remotely is exactly the same as the service we offer from our offices, but perhaps with the odd cat and dog “helping”.

Through our market expertise and our proprietary Aladdin platform, which combines risk analytics with comprehensive portfolio management, trading and operations tools, we’ve been able to assess risk in real-time to help navigate the extreme market turbulence.

Risk: While proprietary technology platforms may help manage risk, risk cannot be eliminated.

With that insight and knowledge in tow, we took the decision to reduce risk in client portfolios during the course of last year by increasing allocations to matching assets and increasing hedge ratios.  Whilst we did not foresee the impact of COVID, we did expect bouts of material volatility as we navigated the course of 2020.  This decision has helped cushion our clients funding levels.

Now our clients are asking us one big question: what happens next? Here are some answers.

We’re watching

Our job right now is to review and adjust clients’ asset allocations where necessary.

At the moment we believe there is an opportunity to allocate more to risk assets. We see a strong but nuanced case for high yield and credit and are capitalising on this by buying the right bonds where they appear good value taking into account changing fundamentals and the current outlook from BlackRock’s Investment Institute.

We’re looking for opportunities

Past history shows us that after a big market sell off there are often huge dislocations that create opportunity for the discerning, dynamic investor and that is exactly what we are seeing now. At BlackRock we continue to be nimble and flexible when allocating assets to ensure we capture the right opportunities for our clients.

We’re using our expertise and ability to act quickly to build, and rebuild, resilient, sustainable portfolios for our clients. In addition to credit and equities, we are also using:

  • Private market solutions. Access to infrastructure products and other untraded investments can provide a rich seam of growth in difficult times.
  • Exchange Traded Funds (ETFs). ETFs allow us to act fast, capturing intraday price action, which is really important in times of heightened volatility
  • Sustainable investments. More than just a regulatory requirement for pension funds, sustainable products have shown resilience through the coronavirus crisis. In the first quarter of 2020, we have observed better risk-adjusted performance across sustainable products globally, with 94% of a globally-representative selection of widely-analysed sustainable indices outperforming their parent benchmarks.1
  • Factor overlays. Overlay strategies allow us to mitigate risk and minimise volatility
  • Thematic funds. Thematic Funds provides us the opportunity to access and benefit from longer-term societal shifts that impact an entire industry, such as a moves into healthcare, technology and sustainability related companies.

Risk: There can be no guarantee that the investment strategy can be successful, and the value of investments may go down as well as up.

We’re building resilience

What periods of extreme market volatility demonstrates, is that resilience is key. A resilient portfolio is diversified, and the asset allocation and risk management need to be dynamic. Its manager is alert to coming changes and positioned to act fast when necessary.

Risk: Diversification and asset allocation may not fully protect you from market risk.

This and other techniques from the fiduciary management toolkit help bring peace of mind for clients in troubled times.

By the time I post my next blog, chances are the world will look very different again. Thanks to my colleagues’ expertise, our clients’ portfolios will be ready.

Sion Cole
Managing Director
Read biography