South Korean soldiers spray disinfectants inside an apartment complex under cohort isolation after mass infection of Covid-19, Daegu, South Korea, March 9 2020. Picutre: REUTERS/KIM KYUNG-HOON.
South Korean soldiers spray disinfectants inside an apartment complex under cohort isolation after mass infection of Covid-19, Daegu, South Korea, March 9 2020. Picutre: REUTERS/KIM KYUNG-HOON.

The Covid-19 pandemic is creating havoc with emotions and has the potential to lead to a world economic recession.

But investment experts have called for calm among nervous investors, advising you to take health precautions and make the most of investment opportunities.

Isaah Mhlanga, executive chief economist at Alexander Forbes, says the economic consequences of Covid-19, though not as deadly as the Sars virus in 2003, is having a significant impact on world markets.

Back in 2003, when the Sars virus made its appearance, China was a less significant player in the world economy and it produced low-value manufactured products. Today, China’s economy is 10 times larger and it produces high-value products so the impact on the world economy is more significant.

While the threat to health and mortality rate of Covid-19 is actually 10 times lower than that of Sars, the speed of transmission about the globe is leading to a greater impact on world markets.

Equity markets are in the grip of a sell-off and analysts are already talking about a global economic recession, Mhlanga says.

Emerging markets have been hardest hit as investors leave riskier markets in favour of safer havens, he says.

Steven Nathan, CEO of 10X Investments, says emotions cause unnecessary stress and seldom solve problems. Knowledge with action provides a solution and peace of mind in challenging times such as these.

Nathan suggests you minimise risk to your health, your family and community, and develop a plan about your investments.

We don’t know how Covid-19 will play out or exactly what its impact will be on stock markets over the next few weeks, months or years, but it is probably not a good idea now to sell your stock market investments if you are a longer-term investor (defined as a time horizon of more than five years), he says.

Stock markets  are expected to have recovered most, if not all, of the losses within five years, he says.

As a longer-term investor, you should welcome lower share prices as a buying opportunity. If you have money to invest for the medium to longer term, this is likely to be a good investing opportunity, Nathan says.

Tips to survive the volatility

* Focus on your investment goals;

* Stick to your long-term investment strategy;

* Markets are at a low point now which represents a buying opportunity;

* Don't automatically terminate your investment manager who is at the bottom of the performance table because that could be the time that the manager may start to outperform, allowing you to recover from your under-performance; and

* Successful investing is about time in the markets, not trying to time the market.

Source: Alexander Forbes

Janina Slawski, head of investment consulting at Alexander Forbes, advises retirement fund members to avoid looking at the current value of your retirement savings and also advises that you consider investing more money while the markets are at a low.

She warns that the future  will be marked by low returns and the volatility in markets experienced during the nerve-racking ride in 2019 is likely to continue.

She also warns against any unrealistic promises of returns based on CPI + 7% and that you should expect a low-return environment for some time.

Looking back over the past year, the annual Alexander Forbes Manager Watch survey showed that the best return delivered by an SA balanced manager over three years was 8.17% and the lowest return was -0.62% with an average of 4.54%.  

Slawski says of all the asset classes, bonds were the safest and least volatile, while shares delivered more volatile but lower average returns over the past three to five years. This means investors had to be invested in all asset classes to achieve better investment returns, she says.

When markets are volatile, it is especially important that you choose the right investment manager, but it is equally important not to switch managers and to give your manager time to deliver returns for you.

The range between the top and bottom performing equity managers  in the survey in 2019 was about 19% which means that you, as an investor, need input and insights from your adviser on choosing the right manager.

If you have two investment managers and you are very happy with the performance of one and unhappy with the returns delivered by the other, bear in mind a year or two later, they may have swapped about. Different managers perform in different market cycles and this is why we encourage investors to stay invested over the longer term, she says.

Slawski says that your trustees should ask your fund’s investment manager the right questions.

“Many managers are proud of themselves because they beat benchmarks but may not be aware that they may potentially be delivering significant underperformance for the fund’s members because they did not deliver on the fund's chosen CPI plus target,” she says.

Investment managers believe they are successful if they beat their chosen benchmark but, she adds, there can be a wide disparity between benchmark returns. For instance, there was a 6% difference in 2019 between the JSE All Share Index (Alsi) and Capped Shareholder Weighted Index (Swix).

If your money is invested with an equity manager that is outperforming the market, look at the manager's underlying benchmark. If the manager is benchmarked against the Alsi and underperformed this benchmark slightly, the manager could have performed vastly better than a manager that outperformed the Capped Swix over the shorter term, but not necessarily due to manager skill. Over longer investment periods the difference in the benchmark returns should be less pronounced.

Also question how your investment manager is producing returns in a market that does not support its stated investment strategy. For example, ask why a value manager is outperforming at a time when the market is in a momentum phase. This could be because their investment cases came through on specific shares which make them look like a momentum manager, but it would be concerning if there is any sign that a manager is not sticking to its investment style.

Some key trends from the survey are that investment managers are no longer sticking to the traditional asset classes but are allocating funds to alternative assets, ranging from unlisted debt to hedge funds or private equity infrastructure projects.

The survey shows that the percentage of assets invested by the top 10 managers has been reducing over time. The growth of new investment managers taking some of the assets from the top 10 is one reason but it could be that investors may be considering smaller investment houses which can invest in mid- and small-cap shares in more meaningful percentages.

In most environments you can expect smaller managers to outperform the larger ones because they can take stronger bets in smaller parts of the market, Slawski explains.

An example of investment managers sticking to their investment style is Allan Gray and its international counterpart, Orbis, which has performed poorly over a long period.

These investment managers have been avoiding momentum shares, particularly in the international space, which they believe are vastly outpriced. Slawski says these shares have, however, continued to increase in price in the past year, leading to the underperformance. But, she adds, when the market turns, this pricing bubble will burst and some of the real investment cases will come through for investors.

It is important for you, as a retirement fund member, to seek financial advice about your assets overall, as a retirement fund only sees a snapshot of your overall financial position and cannot take into consideration other investments that you may or may not have.