Invest­ment oppor­tu­ni­ties in a time of pandemic

The coro­na­vi­rus came as a bolt from the blue. We cannot predict events such as this, but we can make the most of the oppor­tu­ni­ties they bring. The chall­enge is to reco­g­nise these invest­ment oppor­tu­ni­ties at an early stage and use their poten­tial to bene­fit the portfolio.

The year 2020 began posi­tively for the finan­cial markets. Share prices rose in almost all asset clas­ses before the coro­na­vi­rus brought this trend to an abrupt end in mid-Febru­ary. Within a very short space of time (24 trading days) global shares lost over a third of their value. The markets had never witnessed such a rapid fall. Even during the dot-com bubble of 2000/01 or the 2007/08 finan­cial crisis, it took over a year for the markets to report simi­lar losses.

Howe­ver, while the markets took a quick hit, prices reco­vered just as rapidly. Thanks to deter­mi­ned inter­ven­tion on the part of various central banks and a range of natio­nal stimu­lus packa­ges, the finan­cial markets are defy­ing the pande­mic. Global share prices have almost comple­tely reco­vered after the annual low.

Nevert­hel­ess, years of expan­sio­nary mone­tary and fiscal poli­cies are bound to have conse­quen­ces. Up until now the money from the central banks’ bailouts has prima­rily flowed into the finan­cial markets, allo­wing prices to rise in almost all asset clas­ses. If, one day, the money finds its way into the real economy, it will cause infla­tion. A rise in infla­tion can be offset by incre­asing the base rate. Howe­ver, given rising natio­nal debts in the wake of the coro­na­vi­rus crisis and the high inte­rest burden asso­cia­ted with these, this would be a some­what proble­ma­tic move.

What should a non-profit orga­ni­sa­tion do to adjust its port­fo­lio in a time of pandemic?

It looks as if the coro­na­vi­rus will be with us for some time. Until a vaccine beco­mes a real pros­pect, the finan­cial markets will be plagued by uncer­tainty. To avoid having to sell at rock bottom prices during this time, it makes sense for a non-profit orga­ni­sa­tion to build up a liqui­dity reserve for payouts. Because NPOs serve a long-term purpose, howe­ver, the majo­rity of the organisation’s assets should be invested.

Below we high­light a few of the invest­ment oppor­tu­ni­ties open to you in a time of pandemic:

Mone­tary and fiscal poli­cies boost share prices

With base rates at a histo­ric low – and likely to remain unch­an­ged over the medium to long term – and central banks indi­ca­ting a readi­ness to conti­nue with their expan­sio­nary approach to mone­tary and fiscal policy, our prefe­rence is for shares. Given the uncer­tainty surroun­ding the coro­na­vi­rus and a poten­tial escala­tion in the trade dispute between the US and China, we expect the fluc­tua­tion of share prices to increase. We ther­e­fore favour shares with low vola­ti­lity, comple­men­ted by high-quality shares (see issue 1/20, pp. 32–33). Swiss francs have always been conside­red a safe choice. We ther­e­fore prefer Swiss invest­ments to foreign secu­ri­ties. Local compa­nies such as Nestlé, Givau­dan and Lonza are curr­ently among our parti­cu­lar favourites.

Going for gold 

Like the Swiss franc, gold is also conside­red a safe choice in turbu­lent times. Unlike other precious metals – plati­num or silver, for exam­ple – gold is exempt from VAT. It is important, howe­ver, to bear in mind that, unlike other types of invest­ment, gold does not yield a gene­ric return, i.e. there are no divi­dends (as with shares) or coupons (as with bonds). Success is deter­mi­ned by the fore­cast price alone. The price of gold rises if, for exam­ple, the expec­ted real inte­rest rate (in other words the diffe­rence between the expec­ted nomi­nal inte­rest rate and the fore­cast infla­tion rate) falls or is low. Our proprie­tary gold indi­ca­tor combi­nes these real inte­rest rate expec­ta­ti­ons with gold-speci­fic risk indi­ca­tors and trend signals. At the end of May 2016, it gene­ra­ted a buy signal at a price of 1,212 US dollars per troy ounce. As a result, we increased our gold allo­ca­tion to a maxi­mal weight­ing. The price of gold is curr­ently 1,948 US dollars, an appre­cia­tion of over 55 percent, or 11 percent p.a. (in US dollars). Since the begin­ning of the year, gold has been the best performing asset class. Our indi­ca­tor conti­nues to give us grounds for opti­mism and is fore­cas­ting bright pros­pects for the precious metal.

A crisis opens up opportunities

To sum up, in times of crisis, oppor­tu­ni­ties always arise. It is important to reco­g­nise those oppor­tu­ni­ties early on and to adjust your organisation’s port­fo­lio tacti­cally. While focu­sing on the oppor­tu­ni­ties, it is also crucial to bear in mind the risks asso­cia­ted with the invest­ment. Imple­men­ting your invest­ment stra­tegy in a profes­sio­nal and disci­pli­ned manner and seizing tacti­cal invest­ment oppor­tu­ni­ties will ensure that nothing stands in the way of your non-profit organisation’s finan­cial success.

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