Dear Capstone Clients,
Since the subprime mortgage crisis of 2008/9 equity markets have enjoyed a strong rally. In fact, on March 9, 2020 the S&P500 marked 11 years of the longest bull market in history.
Knowing the cyclical nature of markets, it has always been on our minds that a correction was only a matter of time given an appropriate trigger. We always invest accordingly – understanding that bull markets cannot be indefinitely sustainable and that while corrections are not accurately predictable, they are inevitable.
It seems that COVID-19 has pulled the trigger and in response, public markets are strongly reacting. It was the risk of precisely this kind of volatility that post 2009, inspired us to begin exploring how we can best protect our clients’ capital in times of extreme uncertainty. Our conclusion, which we have been actively deploying since 2012, was that an adequately diversified portfolio must include non-traditional as well as traditional assets. The Capstone portfolios that are non-traditional in nature, in that they have limited to no stock market exposure, have remained stable and in many cases continue to perform per usual. It is in times of crisis and extreme uncertainty that the power of true diversification is demonstrated. Today, we see it working well to mitigate market risk for our clients.
We fully acknowledge the impact that the COVID-19 virus is having on people’s health and we recognize that there will be real impacts to personal, corporate and national incomes with a resulting impact to global GDP that will not be fully understood for some time. Add the uncertainties fueled by disputes and other impacts to the oil and gas sector, and we have an environment where some investors will doubtless feel tempted to hit the ‘panic sell’ button.
If you own a Capstone Fund or Capstone Discretionary Portfolio, know that we are always looking for new opportunities, but also ready to take evasive action if necessary. Our team is constantly re-evaluating our exposures and if we feel that any of our assets should be liquidated to cash rather than carefully nursed through the storm, that is precisely what we will do.
To ensure you are properly positioned for the best path forward, we are paying particular attention to:
- Acknowledge and prepare for the reality that there is going to be an impact from COVID-19.
- Recognize the additional shocks to oil prices.
- Maintain our low level of exposure to oil and gas.
- Remain committed to high quality non-traditional assets and their benefits during uncertainty, while holding only traditional assets that continue to represent good value for our investors.
We understand that you may still have concerns about market and economic conditions – please tell us! We are happy to talk through our approach to current circumstances.
Sincerely,
Glenn Murray CFA
President & Chief Investment Officer