{"id":216705,"date":"2020-03-30T04:12:59","date_gmt":"2020-03-30T04:12:59","guid":{"rendered":"https:\/\/bmltd-intl.com\/?p=216705"},"modified":"2020-03-30T04:13:41","modified_gmt":"2020-03-30T04:13:41","slug":"7-reasons-for-investors-to-be-optimistic","status":"publish","type":"post","link":"https:\/\/bmltd-intl.com\/?p=216705","title":{"rendered":"7 Reasons for Investors to be Optimistic"},"content":{"rendered":"\n<p><strong>1. Coronavirus will pass, whereas fiscal and monetary stimulus\nwill be long-lasting <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;Bond yields are likely to remain low for many years from now,\nwith base rates at all time lows and extensive central bank bond purchases\n(quantitative easing). The US Federal Reserve effectively announced unlimited\nQE a few days ago. <\/li><li>\u00bb &nbsp;Governments worldwide are increasing expenditure to extreme\nlevels that have historically only occurred at times of war, representing 10%\nof GDP in the US and as much as 20% in the UK, with more likely to come. <\/li><li>\u00bb &nbsp;These stimulus measures will ripple through the global economy\nfor years to come, driving a strong growth recovery once coronavirus is beaten,\nwhile reducing the risks of widespread corporate defaults and supporting higher\nvaluation multiples for equity markets. <\/li><\/ul>\n\n\n\n<p><strong>2. The best returns tend to come from the point of greatest\npessimism <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;As Warren Buffet famously said, investors should be \u201cfearful\nwhen others are greedy and greedy when others are fearful.\u201d One must remember\nthat the value of an equity stake in a business is the present value of all\nfuture cashflows, not just those over the next few months. <\/li><li>\u00bb &nbsp;The best rolling ten-year equity market returns, measured by the\nDow Jones Industrial Average index, have come from the times when all hope\nseemed lost. Investors buying equities at these points \u2013 including at the end\nof WW1 and WW2, at the depth of the great crashes of 1932 and 2009, and after\nBlack Monday in 1987 \u2013 benefited from 10 year annualised returns of 10-15% per\nannum. <\/li><li>\u00bb &nbsp;Several of our underlying managers are seeing incredible value\non offer following the market falls, with estimates of upside potential\nclimbing to levels not seen since the global financial crisis. <\/li><\/ul>\n\n\n\n<p><strong>3. Markets will recover long before the economic and\nhumanitarian crisis is over <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;Financial markets always move to reflect a change in the outlook\nfor economies and corporate profitability well ahead of the fundamentals\nactually reflecting that. This \u2018lead\u2019 effect means that declines in global\ngrowth and corporate earnings, as well as a rise in defaults, are already very\nmuch \u2018priced in\u2019 at this point. <\/li><li>\u00bb &nbsp;This means markets have potential to recover significantly if\nthe actual outcome is simply not as bad as expected. Markets are already\ndiscounting much of the grim news which bombards us daily and, while the news\nflow is unlikely to improve for some time, they will almost certainly begin to\nrecover well before the worst of the economic and humanitarian impact is felt. <\/li><li>\u00bb &nbsp;The Chinese equity market has been a perfect example of this.\nWhile the coronavirus was treated as an isolated issue for China in January and\nFebruary, the market bottomed in early February around the time the spread of\nthe virus peaked and began to slow down. The Chinese equity market subsequently\nfell further in recent weeaks due to the weaker outlook for growth outside of\nChina, but as of today it is still by far the best performing major market\nglobally year to date. <\/li><li>\u00bb &nbsp;Similarly, we expect global markets to begin their recovery once\nan end is in sight, well before it is reached. We are already seeing signs of\nthat in Europe, with the growth in new cases beginning to slow down.\nInterestingly, European equity markets are up over 6% since 13th March, while\nthe US market is down nearly 9%. <\/li><\/ul>\n\n\n\n<p><strong>4. Market falls\nshould be welcomed by long term investors <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;As painful\nas large market declines can feel at the time, the effect on valuation\nstatements are only temporary, so long as investors don\u2019t crystallise their\nlosses. <\/li><li>\u00bb &nbsp;For those\nmaking regular savings, or with additional reserves to invest, lower valuations\nmean more shares\/units can be acquired for any given cost. This \u2018dollar cost\naveraging\u2019 effect creates greater value over the long run. <\/li><li>\u00bb &nbsp;Most equity\nmarket investors are well paid to wait for any recovery, as well. For example,\nthe dividend yield on the FTSE 100 index is now in excess of 6% per annum.\nFixed income investors are also well paid, with high-grade corporate bond\nindices offering yields in excess of 4%, compared to bank deposit rates of zero\nor less in most countries. The chart below shows how extreme the market\nreaction has been compared to other bear markets, demonstrated by the speed and\nmagnitude of the increase in spreads on USD investment grade bonds (the excess\nyield over government bonds) <\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" width=\"1024\" height=\"561\" src=\"https:\/\/bmltd-intl.com\/wp-content\/uploads\/2020\/03\/Screen-Shot-2020-03-30-at-12.10.25-PM-1024x561.png\" alt=\"\" class=\"wp-image-216706\" srcset=\"https:\/\/bmltd-intl.com\/wp-content\/uploads\/2020\/03\/Screen-Shot-2020-03-30-at-12.10.25-PM-980x537.png 980w, https:\/\/bmltd-intl.com\/wp-content\/uploads\/2020\/03\/Screen-Shot-2020-03-30-at-12.10.25-PM-480x263.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) 1024px, 100vw\" \/><\/figure><\/div>\n\n\n\n<p><strong>5. The Harmony Portfolios\nare well positioned to capture a market recovery <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;The Portfolios came into this period\n     carrying less risk than at most times over the last five years. We\n     recognised that valuations were relatively high and that markets were\n     vulnerable to a substantial correction. In recent years we had reduced our\n     equity and credit market exposure and built up holdings in defensive asset\n     classes (including government bonds, gold and alternatives). <\/li><li>\u00bb &nbsp;This has helped moderate losses in recent\n     weeks, while our multi asset-class diversification has ensured the\n     Portfolios held up better than many single asset class strategies and\n     indices. Importantly, we have capacity to increase our equity and credit\n     holdings, whilst remaining within our mandates, which will enable the\n     Portfolios to deliver higher returns when markets recover. <\/li><li>\u00bb &nbsp;We increased risk to good effect after\n     sharp equity market declines in 2015 and 2018. This time around, we have\n     been right (so far) not to increase our equity holdings, as we recognised\n     that the worst was yet to come in markets. We have maintained our exposure\n     though, through rebalancing rather than the alternative of letting\n     allocations drift, thus ensuring we will get full benefit of any eventual\n     market rebound. <\/li><\/ul>\n\n\n\n<p><strong>6. The Harmony Portfolios\nare fully liquid <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;All\n     Harmony Portfolios are fully liquid. That means we offer daily pricing and\n     daily dealing for investors, no matter what the market conditions are.\n     Furthermore, we ensure we are always able to adjust portfolios for\n     subscriptions or redemptions, by only buying underlying investments that\n     are also fully liquid (i.e. no liquidity mismatch). <\/li><li>\u00bb &nbsp;The\n     liquid nature of the portfolio holdings has led to greater downside in\n     recent weeks; as liquidity<br>\n     was sucked out of markets and investors panicked, liquid investments\n     inevitably bore the brunt of the selling pressure. However, this is a\n     temporary \u2018mark to market\u2019 phenomenon, and prices will recover as supply\n     and demand come back into balance. <\/li><li>\u00bb &nbsp;The\n     benefits of liquidity at this time are twofold and neither should be\n     underestimated. Investors in the Harmony Portfolios can redeem their\n     holdings at any time, or equally they can add to their holdings to take\n     advantage of the exceptional value on offer in equity and credit markets. <\/li><\/ul>\n\n\n\n<p><strong>7. This market\nenvironment is well suited to a multi-asset and active approach <\/strong><\/p>\n\n\n\n<ul><li>\u00bb &nbsp;The\n     levels of indiscriminate selling and deleveraging we have observed have\n     created wide ranging opportunities across markets. Most defensive sectors\n     and stocks have fallen as much as markets more broadly, meaning prices\n     have fallen far further than justified by any deterioration in\n     fundamentals, creating an opportunity to buy high quality assets at\n     substantial discounts to their fair value. <\/li><li>\u00bb &nbsp;Active\n     managers are able to take full advantage of these dislocations, while\n     passive strategies, by definition, will not actively tilt towards the\n     mispriced opportunities. Furthermore, the flaws inherent in passively\n     managed credit ETFs have been highlighted recently; they have provided\n     liquidity but at huge cost, with material discounts to NAV opening up. The\n     vast majority of equity and credit holdings in the Harmony Portfolios are in\n     actively managed strategies, meaning they are carefully researched and\n     selected by many of the world\u2019s best specialists in those areas. <\/li><li>\u00bb &nbsp;Correlations\n     between asset classes have been unusually high, meaning the\n     diversification benefits<br>\n     of our multi-asset class approach have not been felt as much as they\n     usually are through periods of heightened volatility. However, when\n     markets stabilise, as they have shown some early signs of doing in recent\n     days, then prices should begin to realign with fundamentals and\n     performance should rebound strongly. <\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>1. Coronavirus will pass, whereas fiscal and monetary stimulus will be long-lasting \u00bb &nbsp;Bond yields are likely to remain low for many years from now, with base rates at all time lows and extensive central bank bond purchases (quantitative easing). The US Federal Reserve effectively announced unlimited QE a few days ago. \u00bb &nbsp;Governments worldwide [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":216707,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/posts\/216705"}],"collection":[{"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=216705"}],"version-history":[{"count":1,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/posts\/216705\/revisions"}],"predecessor-version":[{"id":216708,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/posts\/216705\/revisions\/216708"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=\/wp\/v2\/media\/216707"}],"wp:attachment":[{"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=216705"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=216705"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bmltd-intl.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=216705"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}