Some are calling this the best opportunity in decades, while others are concerned about how deep and drawn-out the economic consequences will be.
Capital markets were off to a strong start in Q1 2020 until the COVID 19 global pandemic took its toll in late February. Since then, the extreme sell-off and subsequent volatility in equity and debt markets has garnered the attention of all investors worldwide. Some are calling this the best opportunity in decades, while others are concerned about how deep and drawn-out the economic consequences will be. The jury is certainly still out.
The number one question we have been getting from clients is “What is WealthCo doing about the virus?”. Before we go into detail about our strategy, it is important to recognize that through our robust investment process; we have already taken several actions to mitigate these types of risks.
WealthCo’s core belief has always been, “the best way to manage volatility and risk is to have a diversified portfolio beyond public equities”. With a smaller equity allocation focused on institutional equity managers, the WealthCo portfolios benefit by investing in alternative asset classes such as direct ownership of real estate, mortgages, credit strategies and private equity.
More than half of our assets are denominated in US dollars, the “safe haven” currency that generally appreciates in times of market distress.
Our equities have minimal exposure to resources, and a strong focus on high quality recession-resistant companies.
A large percentage of our mortgages and real estate assets are residential buildings, which are typically more resilient in economic downturns.
We have minimal exposure to the lowest ranked investment grade bonds (BBB-rated or triple B’s), focusing instead on bonds A-rated and higher.
We have recently been focusing on mortgages for income producing properties in the multifamily-residential and industrial segments, particularly in urban centres.
We have a strong cash position and are poised to act on opportunities during a market correction.
As a result of the above, our clients have seen the value of their portfolios fall -6.4% in the first three months of 2020, at a time when equities fell -21% and traditional balanced funds with a 60% stock and 40% fixed income mix dropped -10%.
OK, so what now?
We are prioritizing cash and liquidity for our clients. Currently we hold 6.3% cash and cash equivalents across our four proprietary funds.
We have been reaching out to all our strategic partners to evaluate the impact of the shutdown on our pooled strategies. Our conversations have left us encouraged about the resiliency of our investments to negative market shocks, and optimistic about the potential for long term growth.
We are selectively and patiently looking for opportunities to take advantage of the correction. Right now, with an emphasis on patiently.
First Quarter Highlights
The rapid decline in equity prices has created an opportunity to buy high quality companies at attractive valuations. Our equity managers are carefully acting on these opportunities, consistent with their strategies that have been in place for many years.
For the most part, the real estate construction projects in our portfolio are continuing with few disruptions. Right now, supply chains are largely intact. For example, the Star Metals Residential building in Midtown, Atlanta topped out in March and is on pace for completion this summer. Upon completion the project will include 409 unique residences.
We extended a new mortgage on a purpose-built, rental apartment building in Montreal, Quebec at the end of the quarter. The property has 4 stories and 126 apartments in the Ahuntsic-Cartierville Borough, 10km northwest of Downtown Montreal. Construction was completed in 2019 and lease-up is progressing.
We also extended a mortgage on a new garden-style apartment construction project in Round Rock, Texas, which is just outside Austin. The site is located less than 1-mile south of the Dell Technologies world headquarters, home to more than 10,000 employees. Additionally, the site is within a 20-minute drive of the Parmer Innovation Campus, The Domain and the planned Apple Campus whose tenant base collectively includes Amazon, Apple, 3M, Facebook and Cisco Systems among many other blue-chip employers.
Stand tall in the face of adversity
The events of 2020 will undoubtedly redefine the investment landscape in ways few investors will be able to predict. There are some obvious near-term effects that can already be observed, such as lower oil demand because there are fewer cars on the road, and considerable stress on the travel and tourism industry. But it isn’t all bad news; there will be winners too. For example, higher demand for video conferencing and streaming services while the world is self-isolating, and longer-term, there may be opportunities in communications infrastructure as there will likely be a need for significant investment to upgrade capacity. Every sector of the market will be impacted in different ways, which is why it is important to have an actively managed, diversified portfolio and professional investment advice.
We believe that volatility in the capital markets will continue to be the theme for the remainder of 2020, but patience and a strategic approach will lead to opportunities and long-term positive results. If we can offer one piece of investment advice to our clients, it is to stand tall in the face of adversity. We understand it is difficult to tolerate losses, but if you maintain composure in tough times, you will be set to thrive during the inevitable recovery.
The results speak for themselves.
OUR HARD WORK, AT YOUR SERVICE.
Download the WealthCo Asset Management first quarter fund fact and see how they have weathered market volatility now, and over the past 20 years.
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