Investors are finally rethinking the economic impact of the Covid-19 virus. As if the voluntary shut down of one of the worlds largest economies wasn’t enough, the news this weekend highlighted outbreaks in Italy and South Korea. We don’t believe that the real news comes from the direct Chinese impacts, but rather the indirect impacts that may rear their head as the next several months unfold. Over 30 US companies have already begun revising their earnings estimates lower for the 1st Quarter. The most vulnerable companies and countries will be those with exposure to Chinese supply chain disruption and those with highly indebted balance sheets. We are not so sure that the snap back recovery most analysts are expecting will last, as many of these over-levered countries and companies are exposed.
Not all assets share this exposure and some assets will be the beneficiaries of this volatility, a few of which we already own alongside cash. The Cambria Tail Risk ETF, Doubleline Total Return Bond Fund and VanEck Vectors Gold Miners ETF are all significant holdings that have increased in value over the last several days.
This virus is an increasingly worldwide tragedy and we pray for its containment. We have worked diligently to have our portfolios prepared for the inevitable market volatility and have been very pleased how they have responded over the last couple of days.
Whether you depend on retirement income or the long-term growth of your portfolio, this volatility will create opportunities to reinvest at lower prices. As investors, we like when assets go on sale. I believe this market volatility will be with us for months to come as we deal with the economic fallout and there will be more specific commentary to come in our upcoming quarterly letter currently in the works.
If we can be of any assistance to you and your family in managing your portfolio and navigating this volatility, please don't hesitate to contact us.
Jason Lesh, Managing Principal