Whilst most of us might not speak Greek, we will know the extent to which it has influenced the English language. Take the root word 'idios' which means 'one's own' or 'self' leading to words like 'idiosyncrasy'. But what does this have to do with the current pandemic and how we should consider investing?
There's no doubt we are experiencing unprecedented market risk ('systematic') but is the line between this and idiosyncratic risk ('unsystematic') becoming blurred, and if so, what can we take from this convergence?
Outlook – the world re-boots?
Many of you will have dialled into our updates on the current macro environment and heard us talk through the various post COVID-19 recovery scenarios: v-shaped, u-shaped or a 'Nike' swoosh. Clearly we don't know the length and severity of the recession, this will depend how the virus is controlled and the availability of a vaccine. But if we consider that the 'sudden stop' in the world economy is like a power cut which has never been seen before and when the power comes back on we'll need to assess the damage. Some companies will have fared well, some will have a pulse and some won't have survived. For those that make it, the question will be if they are suited to the new environment and if not, do they have the resources and insight to adjust? As advisers, will there be a filter by which you can help your clients assess the future prospects of these companies post COVID-19?
Looking beyond the 'macro', let's also take a look at the response of the pandemic from a societal perspective to date (end of April), and consider how this will affect the lens through which we may examine the world (and companies) in the future.
The process of adjusting to our 'new normal' isn't linear. But across the spectrum we've seen panic, selfishness and blame through to acceptance, resilience and generosity. It could be said that for all the news of mass poor behaviours there have been far more examples of the good, as people slow down and find ways to be resourceful and thoughtful. We've seen pop stars performing free concerts or workouts from their lounges, rainbows in windows and the 8pm Thursday clap for the NHS (one of my neighbours appeared perplexed when he cycled home to rapturous applause from our street all the way to his front door!). And who hasn't been inspired by Captain Tom's actions and words!
Most of our industry have been adjusting to working from home and rising to the challenge of finding ways to help and calm our clients virtually. But many will believe we are more connected thanks to the increased usage of video conferencing and a willingness to be part of this. Who would've thought that people would be logging on after work to be doing online pub quizzes on Zoom?
There's no manual for companies to use to survive during this time; some have furloughed their staff, some have chosen not to despite being eligible, and some have changed their minds. What's 'right' or 'wrong' is decidedly grey. On the other hand, some company behaviours have been clearer to judge; we've seen senior staff donate or cut their salaries and companies adapt their manufacturing lines to produce hand sanitiser or PPE, alongside large retailers leaving contracts unpaid and workers destitute.
E, S and G
Environmental, Social and Governance (ESG) investing has been garnering more attention over the last few years. Some of the largest ESG funds are outperforming the broader market during the coronavirus crisis1. This could arguably be more of a lower carbon play, so in addition, it's important to look over the longer term and, of course, in the post COVID-19 environment.
If we look on a more generic level, two indices, the difference is noticeable.
Past performance is not an indication of future returns
|MSCI World SRI||-10.84||-17.48||-10.17||-4.19||15.88||27.80|
Source: FE Analytics 31 March 2020
COVID-19 could be a defining moment as we respond to what we're experiencing and re-calibrate based on these experiences, our true values and those that are aligned to them. 'Environmental' has been a key focus in the ESG conversations thus far. But will the 'S' and 'G' now come to the fore? Some companies may be tarnished by their actions, while some may be more admired.
Post COVID-19 will you and your clients think differently around your actions be it travel, consuming and investing? For example:
- Will consumers question whether the company or provider supported their staff/suppliers as they deem fair?
- Will this mean consumers will be less cost conscious and more values focused, a sort of value for peace of mind or will costs still be king?
- Will you and your clients proactively want to be investing in companies that behaved well during the crisis from a moral and economic viewpoint?
Going back to the Greek root word 'idios' meaning 'one's one' or 'self'… It is also the basis of the word 'idiot'! Putting it into today's context, those not displaying actions to benefit the collective could be akin to idiocy, especially for companies.
ESG filters could be a way of helping advisers and their clients sift out those that won't survive in the new world where moral alignment is another consideration alongside price, service and product. And going back to the initial question, when it comes to investing it could be that you and your clients will be saying 'adios' to those companies and providers who don't align to values in a post pandemic by showing too much 'idios' during it!
HSBC Global Asset Management has added three more funds to its Global Sustainable Multi-Asset Portfolios, taking the range up to five, all of which are rated by Synaptic:
- HSBC Global Sustainable Multi-Asset Portfolio – Cautious
- HSBC Global Sustainable Multi-Asset Portfolio – Conservative
- HSBC Global Sustainable Multi-Asset Portfolio – Balanced
- HSBC Global Sustainable Multi-Asset Portfolio – Dynamic
- HSBC Global Sustainable Multi-Asset Portfolio – Adventurous
- Source: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/major-esg-investment-funds-outperforming-s-p-500-during-covid-19-57965103,
- Source: HSBC Global Asset Management as at 31 December 2019
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