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James Klempster, CFA | 24 March 2020

Business and investment

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We have, as a firm, been monitoring the spread and impact of COVID-19 closely throughout recent months. The humanitarian impact is terrible and the operating environment is challenging to say the least for all businesses. As we communicated to you a week ago we, as a whole team, started implementing our Business Continuity Plan (BCP) in order to reduce the risk to our colleagues and clients and to do our bit to reduce the spread of the illness throughout society. As of last night the UK Prime Minister, Boris Johnson, fell into step with many of his global counterparts by putting the UK into de facto lockdown. The British people were told last night "you must stay at home" and should only contemplate venturing outside for "very limited purposes" in order to combat this "national emergency". This is, in essence, the setup we have tested over the past week.

I want to assure you that we have adapted well to the new way of working that we have trialled extensively over the past week and we are ready to spend as long as necessary working from home via our BCP setup. Over the past week we have instructed, executed and settled hundreds of trades in securities, funds, segregated mandates and derivatives to keep our client portfolios correctly positioned. We have had dozens of meetings and we continue to have very full diaries in the weeks ahead with clients from all over the world that would like an update on our portfolio positioning and market views. I would like to take this opportunity again to offer our team's insights to you; so if you would like an update on markets or portfolios please do not hesitate to contact us to arrange a conference call. We continue to meet our managers, albeit virtually, and we are just as well covered in terms of research and insights as had we been in the office. It is a testament to both the professionalism of our team and the preparedness of our BCP systems that this transition has been so smooth. It is also a salutary reminder of how powerful and positive a role technology plays when used to its full extent.

Amongst the lurid headlines, we must remain cognisant of a couple of important pieces of conventional wisdom. The first is that the markets will, at some point, recover. Of course we do not know how quickly that will take place but unless you think coronavirus is unpicking the very fabric of capitalism or the financial markets, then that is a fairly safe assumption. The second assertion is that the market is likely to turn long before the news flow does. This is, of course, the complicating factor. Investors long for certainty but by their very nature markets are uncertain. Especially in the short term. Investors also like to be able to see a clear link between cause and effect which explains why we all hope to identify a "catalyst" or key piece of information that is likely to turn the tide. In reality what we need to see is information that is not quite as negative as what was expected, on average, by market participants. That is enough, in the first instance, to provide resilience to asset prices. As more of the world reels from COVID-19 and as large swathes of the global economy cease to function as normal the investment community is no longer naive to the potential impact of the virus. Market movements demonstrate this.

In recent weeks, the market has been impacted by a general realisation that the effects of the pandemic would likely be far greater than expected even a month ago. Indeed, it seems as though those concerns risk tipping into concerns over solvency risks for businesses and consumers. The concerted global government fiscal and monetary efforts are helping to reduce anxiety around liquidity issues. While equity markets remain volatile, we are seeing less of the indiscriminate selling that we saw over the past two weeks which suggests that the analysis of the likely financial impact is becoming more judicious. But still there are plenty of unknowns: How deep and long will the recession be? How long will it take to bring the virus under control? and so on. Either way it is clear that governments will go to almost any length to keep economies on a reasonably even keel.

I think one important factor in the next couple of months will be when we come to realise, amongst all the changes to lifestyles, the individual human tragedies and the risks posed by coronavirus, that life goes on. People who earn will still consume, albeit in different ways. Today we sit in the maelstrom, but it will subside and while things may take some time to get back to normal, we are a resilient adaptable bunch and the long road up out from this crisis will be littered with opportunities for long term investors. For now, building well diversified portfolios means investors are not overly exposed to the risks inherent in any single business or asset class and while today might not yet be the time to be bold and take on additional risk, the longer term opportunities are attractive and so it also does not seem to be the right time to capitulate. Patience will pay off.

The team would like to thank our clients for their unwavering support and input and I would like to remind you again that we are available for calls and meetings to run through portfolios and our views should you wish to speak.

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