Kerr Henderson continues to monitor developments related to the Coronavirus (COVID-19) outbreak, which the World Health Organisation (WHO) has now labelled a pandemic.
In our email of 11 March, we advised you of the steps we were taking to ensure continuity of our services in response to these unprecedented circumstances. Since then, we have introduced some additional measures including:
- Advisory staff have been encouraged to hold client meetings by telephone or Skype wherever possible and we have suspended holding client meetings in our offices.
- We have asked some staff to work from home on a rotating basis. Please be assured that we will continue to manage our resources to ensure you receive a high level of service.
Our primary objective is to safeguard the health and wellbeing of all our stakeholders including clients and staff. We are also aware that the impact of the pandemic on investment markets has been dramatic and dynamic. It seems very likely to us that volatility is likely to continue for some time. While this type of situation can be uncomfortable to watch, it is worth keeping in mind that there have been similar conditions in the past from which markets have recovered.Under current circumstances, it can be tempting to consider changing your long-term plans. However, selling investments or delaying decisions when stock markets become uncertain can be fraught with danger and, while it may seem counterintuitive, sitting tight during unnerving periods may well be the right decision.Sharp falls in stock markets tend to be concentrated in short periods of time. Similarly, the biggest gains are often clustered together. It is also quite common for a large gain to follow a significant fall (and vice versa). To help illustrate this, consider the following analysis of the average annual return from the UK stock market over the 15 year period to the end of 2019. As the chart shows, missing just the ten best days over this period would have cut the annual return substantially. This demonstrates that timing the stock market is extremely difficult and that the best policy is usually to stay fully invested over the long term.
Source: Datastream, from 31.12.04 to 31.12.19, annualised return. Returns based on the performance of the FTSE All-Share, with initial lump sum investment of £1,000 on a bid to bid basis with net income reinvested. While impossible to predict the reach and scale of the virus, a widely held view among many well-respected commentators is that the impact on economic activity is likely to be temporary. Some see the potential for a sharp economic rebound once potential disruptions dissipate and expect global economic growth to remain intact – albeit on a lower trajectory. Yet the unknown depth and duration of the shock add material risks, and markets will need greater clarity on the outbreak itself as well as the overall government and central bank policy responses before stabilising.
For the time being, we believe that investors with portfolios which are aligned to their risk profile and with a medium- or long-term time horizon (5 years or more) should remain invested.
Please keep in mind that past performance is not a reliable indicator of future returns. The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation.