Capital at Risk. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 24th March 2020 and may change as subsequent conditions vary.
Market update
Market uncertainty around the potential for contagion of the coronavirus (COVID-19) is dominating global markets. The spread of the virus globally has reached pandemic proportions that will likely result in large economic consequences.
We have seen historic levels of volatility within global markets as investors struggle to price the eventual toll that the coronavirus outbreak will end up having on the global economy. Significant monetary policy measures, and to a lesser extent fiscal policy measures, have already been deployed by central banks in an attempt to mitigate the immediate impact that the virus has on the respective economies. This outbreak remains a public health crisis and we believe investors will only be able to grapple with the fallout once containment appears to have been achieved, and the number of new cases brought back to manageable levels.
Despite the dramatic moves we’ve seen in markets, our central case is that the medical and economic news will continue to deteriorate in a way that market participants will have not fully internalised. Policy actions by central banks and governments may help to cushion the economic impact over the months ahead, and will most likely help to support a strong recovery once the peak of the crisis has passed, but they can do very little in our view to prevent significant damage to growth.
Faced with resource constraints in healthcare systems, countries in Europe and the US have started taking measures aimed at social distancing, such as cancelling events involving large gatherings in an attempt to slow the spread of the virus, though the virus has already spread significantly in both regions.
The eventual economic impact is uncertain but will depend on the duration of the outbreak. A prolonged outbreak through the summer is our worst-case scenario as it would undoubtedly not only cause significant economic damage but could also have political and social ramifications too.
We have seen significant monetary easing and increasing fiscal support by policymakers around the world. Once this, and the lowering of oil prices start feeding into the system, there is likely to be significant stimulus within the economy to kick-start growth. We will be monitoring the evolution of the outbreak, looking for signs of containment and recovery as this will provide a signal that it may be time to step back into markets.
Portfolio update
The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.
BlackRock Charities Growth & Income Fund
BlackRock Catholic Charities Growth & Income Fund
BlackRock Armed Forces Charities Growth & Income Fund
Over the past month we had already taken off risk in the portfolios and added diversifying and hedging strategies such as increasing portfolio duration, equity options, and futures. Given the market moves over the past week we have continued to be dynamic, looking for opportunities to add targeted hedging strategies in order to provide downside protection, as well as opportunities for upside capture.
The impact across each of the three charity multi-asset funds has been to reduce the overall equity exposure to almost 12% below the benchmark (to around 48%), whilst we are slightly overweight fixed income exposure at around 22% and the cash level is approximately 6%.
The funds operate an income reserve that enables us to maintain a regular level of distributions and we expect to be able continue to make dividend payments at current levels for the foreseeable future.
Risk management cannot fully eliminate the risk of investment loss. Reference to individual investments mentioned in this communication is for illustrative purposes only and should not be construed as investment advice or investment recommendation.
