I assume you have been following the news lately, about the Coronavirus epidemic. We have been monitoring the Coronavirus outbreak and we have been deliberating upon proactive measures to mitigate possibly elevated risk exposure. Given the current conservative allocation in accounts, we were well-positioned for this recent spike in volatility and look to maintain this posture.
Background of COVID-19:
Named "COVID-19", for COronaVIrus Disease 2019, the Centers for Disease Control and Prevention (CDC) states that symptoms range from mild symptoms (fever, cough, shortness of breath) to severe illness and death, with symptoms developing between 2 and 14 days after exposure.
While bearing some similarities to the past coronavirus outbreaks of SARS and MERS, this recent epidemic has been proving harder to abate since it was first reported on December 31, 2019. At the time of writing this letter, 53 cases have been confirmed in the United States out of nearly 80,000 globally with new cases being confirmed at a rate that is alarming governments worldwide.
So far, many nations have either begun or extended travel restrictions. In addition, China’s manufacturing has slowed substantially, and it is poised to affect the global supply chain of many consumer goods as manufacturing in other countries also slows without the necessary parts and supplies from China. However, authorities and economists are optimistic that China’s economy will rebound quickly once the outbreak has been contained. Meanwhile, in addition to China leading the world in manufacturing and exports, they also provide more tourists than any other nation. The current major slowdown in international travel has been affecting tourism revenues.
As we have been expressing, we have concerns regarding global economic and political issues and have staked a relatively conservative position in the market. Being relatively light in stocks has kept us well-prepared for this recently heightened volatility. We are deliberating our next steps and have already decided to trim elevated risk from two sources.
- Within stocks, we have had a low allocation to emerging markets (including China) and are further reducing that exposure.
- Within bonds, we trimmed our exposure to high-yielding junk bonds in favor of high-quality treasury bonds.
We would like to point out that these are not drastic moves. We seek to manage portfolios with foresight and minimize knee-jerk reactions and see this as a modestly proactive measure. Meanwhile, we have been seeing our prior preparation for the volatility pay off nicely; our high-quality bond funds have rallied as interest rates have dropped, and several low-volatility funds we have been invested in are holding up much better than the broad market.
If you have any questions or concerns, please contact our office.