March 2020 proved to be a particularly challenging month for investors, with the combination of a worsening in the COVID-19 outbreak and a collapse in oil prices sparking fears of global economic slowdown. By mid-month, virtually all asset classes had been sold off sharply and equity markets were experiencing daily volatility gyrations unseen since the depth of the GFC.
During the second half of the month, governments and central banks launched a series of policy measures to help consumers and businesses through the crisis. While these measures helped support a “relief rally” towards month-end, equity markets still closed out the period sharply lower.
Against this backdrop, the Six Park portfolios fell -6.5% to -14.1% in March, wiping out all prior gains for the quarter. On a rolling 12-month basis, our returns are now to -3.2% to -7.6% (a stark contrast to the +8.9% to +23.0% annual gains just two months ago). It’s important to note that the ASX200 itself was down -18.9% for the month (and -12.8% on an annual basis), underscoring the benefits of being diversified across multiple asset classes.
Even after one of the sharpest sell-offs in history, those investors who have been with us over the past three years would still be up between +5.0% and +11.4% on a total return basis. We also continue to outperform more than 90% of all equivalent risk profile multi-asset managed funds tracked by Morningstar on a rolling three-year basis.
During periods of market chaos, it can be tempting to consider abandoning your investment strategy, selling down to limit your potential losses and then aiming to buy back in once things “have settled down”. However, as we have previously noted, we know from history that this approach is seldom optimal and that investors who are able to hold their nerve during difficult periods like these are usually rewarded over the longer term.
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Notes: (1) Past performance is not indicative of future performance. (2) All figures are illustrative in nature based on notional $50,000 portfolios which are assumed to have been fully invested at the start of the relevant period. Your actual investment performance may vary depending on factors such as the timing of your investment with us. (3) All figures are pre-tax but net of Six Park’s and applicable ETF fees. The results are based on closing prices for each ETF, not NAV. They assume dividend reinvestment (at month end) but do not include dividend imputation, cash holdings or annual rebalances. (4) Returns are annualised.
Asset class performance
Almost all asset classes, apart from our cash yield ETF, tumbled in March. Australian equities and global property fared worst of all, falling -18.9% and -20.8% respectively.
Our cash yield ETF added 0.1% in February. This asset class continued to provide capital stability across our lower risk portfolios albeit with subdued returns given the prevailing low-interest rate environment.
Fixed income fell -0.6% for the month. Although bonds typically provide a hedge against share market declines, such was the extent of this month’s equity market rout that even traditionally safe-haven assets (such as the government bonds held by our chosen ETF) dropped in price. Much of this decline was likely driven by a cascade of selling by fund managers who were forced to sell assets (including bonds) to cover stock losses, meet investor redemption requests and bolster cash levels. Despite this decline, our fixed income ETF has still returned +6.2% over the past 12 months.
International equities fell -7.3% in March (and -13.0% on a hedged basis without the benefit of the ‑5.4% fall in the AUD) as the combination of (i) the rapid coronavirus outbreak (which forced countries into lockdowns) and (ii) a collapse in oil prices (ignited by a supply dispute between Saudi Arabia and Russia) sent stock markets tumbling. Central banks and governments reacted swiftly with an array of stimulative measures to help companies and consumers bridge the fallout. While this helped trigger “relief rallies” towards the end of March, all major markets ended the month sharply down. In the US, the S&P500 was down -12.5% for the month (its worst result since October 2008) while European and Japanese markets experienced declines of similar magnitudes.
Emerging markets fell -12.5% over the month. Coronavirus worries, falling oil prices along with a strengthening USD (which raises debt servicing costs in local currency terms) were all contributing factors. Brazilian and South African markets were among the worst affected. China share markets were also down but outperformed other markets as the number of local virus cases declined and economic activity began to resume.
Infrastructure stocks fell -15.8% in March although we saw large disparities in performance across different segments of the asset class. Transport related stocks (particularly airports and toll roads) fared worst (down 25-40%) and were a significant drag on performance as investors priced in significant short-term declines in passenger movements and patronage). Utilities and communication stocks held up better, with the latter actually rising roughly 4% for the month.
Australian shares underperformed their global counterparts for a second consecutive month, falling -18.9%. Only one of the country’s 22 sub-industry sectors posted gains (household & personal products). Leading the declines were the energy, real estate, and consumer segments (all down by more than 34% for the month!)
Global property was the worst performing sector in March, falling -20.8%, even with the benefit of a -5.4% fall in the AUD. The sector continued to face sharp sell-offs on concerns about the impact that business closures would have on rental incomes and vacancies.