We hope everyone is keeping well in these uncertain times.
With the speed of recent developments, we want to ensure communications are kept up this week. Many of you have been in touch with us during this period and hopefully, those calls have been useful.
Firstly I would just like to stress and credit just how well the whole Ascot Wealth Management team has handled the constantly evolving situation over the past few weeks. Especially with myself being the one self-isolating from last Sunday.
As we get deeper into this COVID-19 period it’s key we keep rationalising the situation. As per our note earlier in the week we have gone into remote working and are fully functional remotely. We sent out an updated contact list, please let us know if you have not received this.
The current levels of volatility are unprecedented, and we are at a stage of ‘fear’ in the attitudes of investors. Yesterday saw large moves in the dollar; partly due to business increasing their cash reserves to meet future liabilities, but just as in any point of market crisis the dollar is the preferred choice of many. We saw this in 2008. While it puts further strain on asset classes such as the £ it will be the cash that comes back into markets when a correction materialises. The extent of the liquidity squeeze yesterday was deeper than I thought and whether this is short-lived or longer term will prove a pivotal point of this pullback.
Focusing on the UK, yesterday we saw the suspension of several UK property funds, which; on one hand, create flash negative headlines, however, on the other, it does protect long term investors in these funds with their physical assets. It does, however, mean we now don’t have the same ability to sell down these particular funds and return investors capital. We will keep you posted on the replacement allocation for any new contributions into the portfolios. I know the investment team have prepared a separate note on this so I will allow that to further explain the implications.
Oil adds further challenges to the market, with continued actions of increasing supply (from the Saudi’s) in a time of lack of demand, this has meant we have seen prices drop to mid-1980’s levels of $25 on Brent Crude and Sub $20 briefly today on US Crude. This will have long-lasting impacts on oil business and the worrying start of downgrades of oil firms to ‘junk’ status today has given all credit markets a violent shock.
See a picture (below) of the oil forward curve which has a short-term pricing to current levels but not a flattening by any means. In Cape Berkshire, we added a small position on Monday and despite further drops yesterday we will, as with all asset classes, keep an eye on this for the opportunity to add if we see fit. We have a call with an excellent natural resources fund manager today, so will inform you further after that, if necessary. Ideally, we would have waited 2 more days to invest, but we simply are not trying to call a bottom to something with truly record-breaking levels of volatility.