Seeking opportunity in the sell-off

We published our first post on February 27th in response to the spread of the coronavirus and its impact on the economy and financial markets.

Broadly speaking, our view has not changed since the writing of that note. Financial markets have kept up their pattern of indiscriminate selling – which some might characterize as full-on panic mode. And while it is true that the health of the global economy is in question, the degree of selling seems disconnected from a longer-term view of economic reality.

For well-capitalized investors, this provides opportunity and we are using it to carefully begin deploying a portion of our cash on hand, investing in our new U.S. equity strategy in the Newport North American Fund and our dividend-equity mandate in the Newport Yield Fund.

In addition, our independent equity managers are beginning to spend some of the cash they hold within their portfolios – adding to existing positions and new ones that were previously too expensive. At the market’s peak on February 19th, our independent manager for North American equities had about 10% cash in the portfolio they manage. As of writing today, they have used some of that cash to buy an interest in a global medical device company and increase weightings in some of their go-to names.

One thing is virtually certain: there will be more market volatility and more opportunities will unfold as the clouds of uncertainty begin to clear. However, it is also clear that while there are a lot of bargains, companies with unique business models tend not to get sold down with everything else or get as cheap as we would like. And stocks don’t bottom all on the same day. There is art and science – and a measure of luck – in chipping away, slowly, at the opportunities created while we await greater certainty.

As you would expect, our Investment Committee is having active debates. We continue to gather and review data, inputs and insights from many different sources – from infectious disease authorities to economic experts, senior bankers to independent money managers.

While the COVID-19 virus will have a very real consequence for both supply and demand factors underpinning the global economy in the near term, history will show this as a blip over the long-term. As Mark Wiseman, former head of the Canada Pension Plan Investment Board, was quoted in a Financial Post article this week, “For those that are well-capitalized, this has the potential to be a fantastic buying opportunity for the long-term investor.”

We remain mindful of our promise to protect and be good stewards of our clients’ wealth and are moving cautiously and deliberately to take advantage of lower prices offered by this declining market.