At Imperial Chartered the safety and well-being of all our clients, staff and their families is our highest priority. We would like to reassure you that we continue to monitor the situation regarding Covid-19 (Coronavirus) extremely closely and are following advice issued by the Government and Public Health England.

Our business continuity committee continues to monitor all possible scenarios to ensure that you continue to receive the high levels of service that you have come to expect from us, no matter how difficult the situation becomes.

We will be limiting the amount of business travel for our employees but have the technology in place so that this should minimalize any impact on our relationship with you. We’ll continue to monitor and review everything we do in order to overcome the current challenges. 

We are also actively discouraging any unannounced visits and face to face meetings at our office.  Where possible we will use telephone calls, Skype or email as alternative methods of communication.

Market Update and Uncertainty

With a considerable amount of uncertainty surrounding Coronavirus and the full impact it will have on the markets, it’s essential to gain some perspective on how different global events have impacted the markets in the past and how the Coronavirus pandemic differs.

One of the easiest ways to compare the current dip in the market is to look at the 2008 financial crisis. During the crisis, shares dropped in value overnight/ over a period of time in a similar way to the current Coronavirus pandemic. When you look at the five-year stage following the 2008 financial crisis, even though shares fell, the total return was positive over the whole five year period.

The main difference between what we are seeing now to what happened in 2008 is that the financial system is in much better shape than it was in 2008. Although markets are seeing drops in value in the short term, the financial system is in a much better position to recover, suggesting a much quicker recovery than we saw in 2008.

Our investment strategies at Imperial are built to be long-term, and market volatility is always going to be a part of that strategy. All of our clients have a diverse spread of assets, some of which have not experienced the losses seen in the media.

Clients who panic & make an emotionally driven withdrawal or fund switch to cash at this stage could lead to crystallising losses and result in missing out on an upturn in the fund values in due course. It’s also important to remember that withdrawing can take up to 28 days (depending on which product you are invested in) which could potentially mean selling at an even lower price.

Within our internal Independent investment committee, we’ve considered in detail some insights from trusted investment managers which might help you to think of the markets with a long term view.

Insight from Brooks Mcdonald – Discretionary Fund Managers

Markets have always moved in cycles and history has proven this will ultimately recover. Therefore, if you were to realise losses now you could be selling at the bottom and then you would be foregoing the recovery. 

As you’re aware there have already been significant losses within portfolios and this could be set to continue. One of the questions we are challenged with regularly is: “why don’t you reduce risk/sell down the portfolio immediately and then reinvest when the market begins to recover” – the issue with this is that timing the re-entry is almost impossible, a delay of even a day or two can result in missing out on significant growth. 

The above graph illustrates how varying risk adjusted portfolios performed during the financial crisis as demonstrated using the Asset Risk Consultant (ARC) Private Client Indices. 

ARC is an independent company that provides the average performance net of fees for all clients from over 80 of the leading investment companies in the UK and provides a fair reflection of what happened during this period. 

The period shows how the 4 differing risk profiles performed from the start of the drawdown (ie the worst entry point) over 4 different periods. If we take the most extreme example on the graph being the Higher risk portfolios you can see that the portfolio fell by over 30% within an 18 month period. However, when you look at the 5 year stage even though they fell 30% the total return was actually positive over the whole 5 years and you can also see how steep the recovery was. This example highlights how being out of the market for even just a few days in this recovery would have severely hampered long term performance. 

At the 5 year stage, although all of the risk profiles are actually in positive territory as you’d expect the lower risk portfolio that fell the least has performed the best over the whole of the period.

Above are diagrams showing the 7 year stage and the 10 year stage of the 2008 financial crisis, you’ll see that even though the higher risk portfolios suffered substantial falls they are now the better performing portfolios with the highest risk portfolio returning the most over the whole of the period and when this is extended out to 10 years this difference is accentuated even further. 

These graphs show total return and do not demonstrate the effect that having to draw an income by selling assets at inopportune moments would have the long term capital value of a portfolio.

Insight From Brewin Dolphin – Discretionary Fund Managers

The below diagram shows performance for Brewin’s 3 main risk profiles (Income, Balanced and Growth) over a 5-year period over the Financial Crisis.  It shows the experience of a client investing at the top of the market in October 2007, and the resulting annualised gross return they would have received over that period if they stayed fully invested.

The financial crisis threatened the collapse of the financial system. Even the most negative market outlook does not point to the Corona Virus having the same effect, given that we have entered this scenario with the financial system in a much better shape than it was in 2007. One thing the market does not like is uncertainty, which clearly, we now have in abundance. Once the news flow slows down and the picture become clearer, markets will regain their feet again.

Clients will still make money by staying invested and riding out the storm, outstripping both the rate of inflation and significantly outperforming cash.  This is why we advocate for investing for the longer term. 

Backtesting from Vanguard – Highlighting market recovery timings

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