No precedent for COVID-19 and fund management

23 April 2020
| By Laura Dew |
image
image
expand image

Fund managers are having to review their strategies and economic assumptions on a daily basis, as the unusual nature of COVID-19 means history offers them no precedent for how to handle the crisis.  

Kej Somaia, co-head of multi-asset solutions at First Sentier Investors, said the economic and stockmarket effects of COVID-19 were ‘fundamentally different’ to anything that occurred in markets before.  

Much has already been cited about how this crisis is different to 2008-2009’s Global Financial Crisis which was caused by a highly-leveraged banking system, affecting the demand side of the economy.  

“The key difference this time is the changes in the economy are fundamentally different in their speed and magnitude and depth and we’ve had to speed up our own process,” said Somaia. 

“We have to review our economic climate assumptions much more regularly – even on a daily basis – not every six months as we would do normally. 

“So, instead of looking for qualitative similarities, we look at the world more statistically for times of high turbulence, because that’s what has been common to all crises. This statistical overlay provides more insight and we think is a smarter way to understand correlations and inform us about volatility, or risk more broadly.”  

He said the combination of dynamic and neutral asset allocation used in multi-asset funds allowed them to react to the changing conditions in markets. Neutral covered the traditional bonds and equities while dynamic was implemented through synthetic securities.  

“This means we can adjust risk settings through DAA, without having to touch the direct securities. This has allowed us to reposition portfolios without needing to step into markets experiencing liquidity issues.  

“We’ve been taking a defensive stance – we’re at about half of our usual exposure for equities, as defined by our NAA. Maybe equity markets will look through the short term – but in reality we think we’re going to see negative results by large number of corporates in coming months, with some of their earnings falling by 45% or more.”  

For more on how multi-asset funds are handling the crisis, click here for Money Management’s latest feature  

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

3 weeks 4 days ago

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

1 month ago

Interesting. Would be good to know the details of the StrategyOne deal....

1 month ago

Insignia Financial has confirmed it is considering a preliminary non-binding proposal received from a US private equity giant to acquire the firm. ...

1 week 3 days ago

Six of the seven listed financial advice licensees have reported positive share price growth in 2024, with AMP and Insignia successfully reversing earlier losses. ...

5 days 19 hours ago

Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equi...

4 days 23 hours ago