How coronavirus is affecting the private banking sector

In a health crisis, one needs health solutions above all. All the rest is political, social and economic expenses but nothing more.
Laurent Ollinger
Manager at DynaCap Independent Wealth Advisors
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Some companies are and will inevitably be impacted but in a limited and very manageable way. While some industries, like air travel and airports related, aerospace, hospitality, advertising, oil and commodity, are going through something truly unprecedented, with important losses.

photo: Laurent Ollinger
Laurent Ollinger, Manager at DynaCap Independent Wealth Advisors

These exposed industries are of course in crisis mode and are not waiting quietly for bankruptcy – they are reducing costs, renegotiating rents, eliminating dividends, raising cash, … and some are getting support from supply-side oriented programs put in place by central banks and governments. If the economy reopens, before the summer, most of them will survive.

Therefore, let’s stay calm and focused on Tests, Technology and Treatments.

What path will recovery take?

coronavirus private banking

Financial markets have, for some weeks now, been healing from the Corona-crisis. The lowest point of March the 23rd already is behind us. However, the virus is currently in its most active phase.

Volatility is a normal part of investing. Market tumbles may be scary, but shouldn’t be surprising. Invest for the long-term.

Many pharmaceutical companies are doing a tremendous amount of research with the common goal of creating a vaccine, probably not before 2021, and develop an effective medicine.

Corona-crisis is much deeper than the abyss in 2008

It could be argued that we were much closer to the abyss in 2008. But, today’s recession is much deeper. The Great Financial Crisis resulted in a rather short recession (Q4 2008/Q1 2009). To reach pre-Corona levels, it would require a tremendous economic recovery in the second half of this year.

Unlikely, for some sectors (entertainment, aviation, etc.) or countries, such as Spain or Turkey where tourism represent respectively 14% and 50% of their GDP, a full economic recovery will be much longer.

The fact that governments around the globe try and keep business from defaulting whilst at the same time keeping individual purchasing power intact is crucial. We can easily say that all contributions from central banks as well as governments have been so far very efficient.

Relief activated programs will possibly generate handsome windfalls for the governments, just as they did in 2008. Just think of the huge profits made by European governments after bailing out the crippled banks during the financial crisis in 2008.

At some point, this virus and health crisis will pass. Once it does, economic recovery will be robust. Many companies will emerge stronger. Whatever the outcome will be, the volatility will remain.

Key principles to improve your chances of success

Passive v/s active management? What about diversification & global costs? One key measure of successful active management lies in the ability of a manager to outperform his peers consistently.

How many funds outperformed benchmarks?

private-banking-sector

This S&P report’s results show that, irrespective of asset class or style focus, few (active) fund managers consistently outperformed their peers. An inverse relationship exists between the time horizon length and the ability of top-performing funds to maintain their success.

ETF’s : Weapons of mass destruction? No way!

«The number of managers that can successfully pick stocks are fewer than you’d expect by chance. So, why even play that game? You don’t need to».

David Booth, Founder and Executive Chairman of Dimensional.

Can Small Cap and Value Stocks Weather the Storm?

Data suggest that challenging economic times shouldn’t deter you from investing in small cap or value stocks.

With recession concerns intensifying in the wake of the COVID-19 pandemic, investors may be wondering whether small cap stocks are poised to struggle. Even if the economy has entered a recession, it does not necessarily follow that small cap stocks should underperform. Why? Current market prices already reflect expectations about future cash flows, including any impact of an economic downturn. So even if the effects of a recession are more heavily borne by smaller companies, small cap stocks can still deliver higher expected returns.

It’s important to remember that even if small companies are going « bust » more frequently than larger companies, that doesn’t necessarily imply that returns for all small companies will be lower. Rather, it is sensible to believe that the expected return for small cap stocks as an asset class compensates for the possibility that some individual companies may go out of business.

Volatility and negative returns will always be part of the story

Even during volatile times, market prices quickly incorporate new information and reflect the aggregate expectations of buyers and sellers-including information about the financial health of small cap companies and the impact that coronavirus developments might have on their future performance.

Investors can put themselves in a better position to pursue their financial goals by investing in a broadly diversified portfolio that includes small cap and value stocks. Diversification can help reduce unnecessary risks associated with the performance of specific companies or industries as well as increase the reliability of outcomes.

Past performance is, of course, no guarantee for future results and never will be; volatility and negative returns will always be part of the story, as recent events have amply demonstrated. However, there is light at the end of the tunnel.

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How coronavirus is affecting the private banking sector