A strong focus on the fundamentals

Published 17 March 2020

News of coronavirus (COVID-19) in recent weeks has contributed to increased market volatility. In this piece, Sam Morse explains how he’s been navigating markets and shares his outlook for the coming months.

Much remains to be seen regarding the impact of coronavirus (COVID-19); notwithstanding the human cost, there will likely be winners and losers. As always, there are a lot of little devils hiding in the details. The bottom line for me is that I do not try to time markets – I will stay fully invested. I will also stay focused on companies with strong balance sheets. Companies with strong balance sheets can take advantage in difficult times, like this, while companies with weak balance sheets may be in peril. 

The cost of trading can also rise dramatically in times of high volatility so my default setting will be to sit on my hands (unless I have a very good reason for doing otherwise). I am investing in businesses that I think are tough long-term franchises and, as the saying goes, when the going gets tough, the tough get going.

As always, investors should pay attention to the companies in which they are invested. As Peter Lynch, the respected American investor, famously said: ‘Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.’ The Company will, as always, stay fully invested and focus its attention on the prospects for its constituent companies’ dividend growth and will consider to what extent that dividend growth is already discounted in the share price. 

Why does the Company stay fully invested? Fidelity has published a lot of research which has shown that trying to call the market is a mug’s game: you may be able to call the top but if you don’t get back in near the bottom you will miss some of the strongest days of return and leave a lot of money on the table. It is also important to note that due to the Company’s investment trust structure and the low gearing, I will not need to liquidate any assets to meet any redemptions or any other liquidity requirements.

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Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments are subject to currency fluctuations. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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