SIC Multi Asset Institutional Composite

  March 2020 Year to Date
SIC Institutional -9.3% -12.5%
Benchmark* -7.3% -9.4%

* 5% T Bills, 35% Canadian Bond Composite, 20% S&P TSX Composite TRI, 20% S&P 500 C$ TRI, 20% MSCI EAFE (Net) C$ TRI

The rapid spread of COVID-19, combined with the unprecedented social and economic measures undertaken globally to contain the virus, turned the economic landscape from a late cycle rally to a near-term severe global recession in just 32 days.  From February 19th  to March 23rd, the S&P 500 fell by 1,200 points or 35%.  Almost 1,100 points were wiped out in just five trading days (March 9,11,12,16 and 18).  Our portfolios were positioned for a late cycle rally prior to the COVID-19 panic – underweight fixed income and overweight equities – therefore underperforming the benchmark in March was inescapable.  Year to date the SIC Multi Asset Institutional Composite is 300 basis points behind the benchmark.

Calling market tops and bottoms has been, and always will be, a fool’s errand.  Calling the bottom this time around is no different.  Logically you would think the bottom will come with an easing of the policy response to the virus – travel restrictions lightened, social distancing relaxed, and non-essential services reopened.  If this were true, the bottom would be seen in the flattening of virus infections or in scientific discovery.  The market will, however, most likely bottom in anticipation of these events, making it impossible to call.

We keep coming back to two critical points.  First, the liquidity being provided by the central banks and fiscal spending by governments globally is absolutely incredible.  Second, equities are the longest duration assets out there.  The next two or three quarters of earnings really do not matter that much to their overall value.  Together, these two points, translate into significant upside for equities.   When upside revaluation occurs, it will be just as dramatic as the recent correction – possibly even more so.  If not positioned before this happens, it will be missed.  For this reason, we will be rebalancing as markets stabilize.  It is quite conceivable that equity markets could fall further and it is most certainly the case that they will be volatile in the days ahead.  We must, however, be accepting of this likelihood to be positioned for the inevitable opportunity.  

Terry Shaunessy
James Garcelon