28 February 2020
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VAM Funds

Welcome to our weekly newsletter, where the Manager summarises the key market developments over the last seven days.

The Noise

The Coronavirus wreaked havoc on markets this week with all major equity indices posting dramatic losses as investors try to price in the effect of the virus on global economic activity. The moves were triggered by the arrival and quick increase in COVID-19 cases in Italy, with fears the trend could quickly spread wider within developed markets.

The US equity market officially experienced a correction (when an Index falls 10% or more), after California’s governor said the state was monitoring 8,400 people for signs of the disease. The S&P 500 has declined almost 11% since last Friday, setting the benchmark on pace for its worst week since the 2008 global financial crisis and with most other indices only narrowly behind it.

Amid the sea of red flooding the markets, the traditional safe haven assets provided some much needed comfort for diversified investors, with gilts, gold and the Yen posting notable gains across both the week and the month. Investors are now ramping up bets on interest rate cuts that could start within months to ease the economic impact of the outbreak. Money markets now see three Federal Reserve reductions this year, starting in April, and one by the European Central Bank in July.

The Numbers

GBP Performance to 27/02/20
1 Week
Absolute Level
Equity GBP Total Return (MSCI)





Europe (MSCI Europe)








Japan (MSCI Japan)




Emerging Markets (MSCI Emerging)




Fixed Income GBP Total Return

UK Government (Barclays Sterling Gilts Index)




Investment Grade Hedged (Barclays Global Aggregate Corporate Bond Index)




High Yield Bonds Hedged (Barclays Global High Yield Index)




GBP Performance to 27/02/20
1 Week
Absolute Level
Currency Moves













Commodities GBP Return

Gold (in £)




Oil (in $)




Source: Bloomberg, data as at 27/02/2020

The Nuance

This week, Coronavirus has had its largest impact on markets so far. The thoughts of the Manager, first and foremost, are on the human impact as this tragic phenomenon affects thousands of lives across the globe, and the quicker that it can be contained and the situation resolved, the better.

The Manager spent a considerable amount of time in January and February analysing and quantifying its portfolio exposures to the Coronavirus. As a result of this analysis, it took targeted steps in its direct funds and models to reduce the cyclicality and increase the protection against equity market weakness. For example, the Manager sold Samsung, a cyclical company exposed to Asia, in mid-January in order to buy Heineken, a more defensive and diversified company. In February, it initiated an unhedged position in US Treasury bonds, designed to benefit from US Dollar strength and potential rate cuts in the US as a likely response to stress in the global economy caused by the Coronavirus.

In January and February, investors were complacent, largely overlooking the short-term economic impacts of the virus. Meanwhile, the Manager was constantly re-evaluating its exposures to various companies, industries and geographies, and where appropriate it took action.

It is now clear to all that this virus is having a very large short-term impact on global economic activity. The story is now front and centre in people’s minds, and while it is prudent for everyone to be concerned, investors should not let panic drive their actions. When the Manager invests in a company, it is not just buying one year’s worth of earnings, it invests in the potentially infinite earnings stream which will be delivered over time. As long-term investors, we need to remember that even if one year’s earnings performance is a complete disaster, then provided the subsequent years are unaffected, the intrinsic value of the company is barely impacted. An asset with a significant short-term performance blip can still yield excellent returns over the long term.

Now that the virus has spread into Europe, markets have started to really pay attention. As such, this week has seen equity markets fall sharply with a pickup in volatility which has taken the froth out of valuations and removed the initial complacency. Investors have taken off their rose-tinted spectacles and are starting to actually analyse the effects of this economic inactivity on the short term performance of companies. On a more positive note, the Manager’s bond portfolio has done very well, allowing it to take profits and reinvest them in the ample buying opportunities for high quality, low leverage companies that are well positioned to weather this short-term volatility.

The takeaway message here is that this virus is having a massive impact on the global economy in the short-term but in the long term, the Manager will be invested in these companies for more than one year. The Manager’s investment thesis has a strong long-term focus and its portfolio companies are quality businesses which will still be around for years to come. The Manager will continue to make every effort to protect client capital and invest appropriately in these uniquely difficult times.

Source: Sanlam Private Wealth

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Sanlam Private Wealth is a trading name of Sanlam Private Investments (UK) Ltd.

Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

The information and opinion contained in this market view should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Sanlam. Any expressions of opinion are subject to change without notice.

Disclaimer: VAM Cautious, Balanced and Growth Funds are compartments of VAM Managed Funds (Lux).
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