The current level of uncertainty regarding the impact of the Coronavirus outbreak is very high. However, what is certain, is that it will pass. Further, before this issue arose, the global economic outlook was increasingly positive, with easing trade tensions and ongoing low interest rates seeing activity picking up in most regions. It is also important to note that this sell off is due to an external issue, rather than being due to some fundamental economic or market imbalance. As a result, markets may well rally violently as signs emerge that the spread of the disease is slowing. However, should it prove to be prolonged, we are likely to see significant policy responses from governments and central banks to support their economies through this period, via a combination of fiscal stimulus and monetary policy.
Our response for the eInvest Income Generator Fund (Managed Fund): EIGA
Given we believe that this issue will be transient, we have not seen the need to significantly alter our portfolio positioning. We remain overweight the cyclical sectors of the market such as Resources and Mining Services, where we see a healthy supply-demand balance resuming, along with select exposures in the Consumer Discretionary and Diversified Financials. Our main defensive exposures are via Telstra and the general insurers, as we continue to avoid the “expensive defensive” sectors of the market such as Healthcare, REITs and Infrastructure. Further, we continue to see significant risk in the market’s highly-priced growth stocks, where very large market values are being ascribed to companies with little or no current earnings.
The current sell off will no doubt throw up some interesting opportunities. In the meantime, we remain focussed on investing in companies with sound, long-term growth prospects, strong balance sheets and which can pay high levels of franked dividends to investors.
Disclaimer: Please note that these are the views of the writer and is not financial advice. The product disclosure statement can be found at www.einvest.com.au
Click here to subscribe to the Switzer TV channel on YouTube and keep up to date with all of our shows.