Sept. 12, 2001
It’s War (New York Daily News)
Hundreds dead (The Washington Post)
America’s darkest day (Detroit Free Press)
Job losses reach the worst level in 5 years (CNN)
Dow Jones falls below 10,000 as global markets melt (The Daily Telegraph)
Fourth worst drop ever in Dow (The Economic Times)
Dear clients and friends,
Greetings from the home office. The above are a few of the headlines I was able to dig up when I began researching for today’s Easter weekend update. The headlines sound familiar, don’t they? Yet, they are from 10 and 20 years ago. Since the time of these headlines and events, Stonegate clients have done well. Better than many suspected when they initially read these headlines years ago.
As of April 8th, the average Stonegate client portfolio (structured with 35% fixed income and 65% equities) is down 12%*, year to date. For context, in 2019 the average portfolio was up 17.5%*. Over the past 10 years, that same portfolio has experienced approximately 80%* growth.
It’s easy to become panicked when you are isolated, and the media and medical experts are filling the social vacuum with fear. Please don’t despair. At Stonegate, we are continuing to carryout our planning and portfolio work on your behalf. We have a plan and it’s being executed.
It was the heavyweight fighter, Mike Tyson who said, “everyone has a plan until I punch them in the face.” We’ve all taken a one-two punch from the stock market drop, Covid-19 and arguably, the drop in oil prices. However, the plan we have been working on with you for years is still in place and we are continuing to adjust these plans as we learn more.
Like all of you, we are hearing both good and bad news. I have spent the better part of the week speaking to CI executives, all of our portfolio managers and many of Canada’s top CEO’s to gain a better handle on what is happening. Here’s a summary:
Firstly, CI/Stonegate’s focus remains on clients. During the Covid pandemic there have been no layoffs. We have the balance sheet to keep the company functioning. 95% of our staff is working remotely.
In our view, data on the Covid-19 pandemic is improving worldwide. The rate of increase in infections and deaths is slowing. Six weeks seems to be the peak of the curve and we are about six to seven weeks into the logarithmic scale. It seems we are passing the inflection point about now. The curve is flattening, as they say.
There will continue to be bad economic news coming and we expect several business failures. As we’ve written previously, we have sold out of the Enhanced Income portfolio and are sitting on a good cash buffer that accounts for about 10% of client portfolios. This cash position is in addition to any cash being held by our various managers, usually about 5-10%.
The Eurozone is in a recession. Europe has shown itself to be a monetary union, not a fiscal one and certainly not a medical union either. Contrary to the media, our connections tell us that our medical system is not overwhelmed, and it is functioning well due to the health policies put in place. We are lucky to have a good functioning system with terrific scientific innovation.
Central banks globally have moved swiftly to implement fiscal and macroeconomic help to economies, but many CEOs I talk to believe it will be a slow recovery. Two to five years is what I’m being told.
Business leaders want governments to move to an “intelligent lockdown” model as the number of Covid-19 cases improve. The need to get people back to work is essential. By May 15th, the effective shutdown date in Canada, I think we can expect to know more.
Without significant testing protocols, the reopening of the economy will be even slower. Premier Ford’s concern about lack of testing is very real. I have personally toured two testing units in Toronto and they are effectively deserted.
What lies ahead?
The World Economic Forum held in Davos, Switzerland this past January sheds some light on the path ahead. Capitalism remains the best performing system for balance, progress and health. The theme of this year’s conference was purpose ahead of profits. Companies are more trusted than governments and the media. As trust wanes, and the complexity of society’s problems grow, companies are closely researching and responding to social and environmental issues to maintain public confidence. Many companies are picking up where governments just can’t cope. People, planet and prosperity are the governing principles for long-term growth. Businesses still face skepticism, but ultimately maintain greater public trust than the government and media. A new form of capitalism is emerging.
We need to look after our clients, staff, and families. We need to have a rolling reduction of social distancing and get back to the new normal. There is more bad economic news to come, and we are preparing portfolios and plans for these eventualities.
In the meantime, we are continuing to invest capital into markets. New capital will be invested on a dollar-cost averaging basis over the next 12-16 weeks as we take advantage of market weaknesses. Our investment policy still favours an overweight of US equities as a defense, and offence, for the current markets. This won’t change for now.
The Stonegate team is here for you. Please contact us with any concerns.
*Returns determined by calculating the average returns of a sample subset of clients with a 35% fixed income and 65% fixed income asset mix.
Stonegate Private Counsel is a division of CI Private Counsel LP and is an indirect wholly-owned subsidiary of CI Financial Corp. Stonegate Private Counsel is a registered trademark of CI Investments Inc. Copyright © 2020 Stonegate Private Counsel. All rights reserved. The opinions expressed here are those of the author and may not necessarily reflect those of Stonegate, or its affiliates. Neither CI Financial nor their respective officers, directors, employees or advisors are responsible for damages or losses of any kind in respect of the use of this information. The information provided is general in nature and is subject to change without notice. Every effort has been made to compile this information from reliable sources however no warranty can be made as to its accuracy or completeness. Please speak to an investment professional before acting on any of the information provided.