Coronavirus/market volatility: Dynamic Real Return Update
Insights

Coronavirus/market volatility: Dynamic Real Return Update

Markets have been trying to digest the impact of Covid-19 on economic activity and government policy. This is hard. The financial impact will be a function not only of the spread and lethality of the virus, but on the response of people and governments to the threat the virus poses to public health.

Markets are essentially trying to assess the outcome of two (still evolving) policies with opposing economic impacts – public health measures on the one hand, and monetary and fiscal stimulus on the other. The fiscal response has been variable in both size and focus; the monetary response, meanwhile, has been huge

Despite meaningful stimulus measures being delivered (with more anticipated), the speed of the market moves has been astonishing, further fuelled by the collapse in the price of oil. Equities have fallen up to 35% from their January highs1; credit spreads are back to levels not seen since 2012 (and are quickly pushing through this); and core government bond yields fell to new lows. The feedback loop between volatility-sensitive strategies and higher experienced volatility has been particularly intense. This has led to ETFs, for example, trading multiple percentage points below NAV.

Resulting portfolio activity in our multi-asset funds has been based on an overarching understanding that the impact of Covid-19 on economic activity is severe, but temporary – but the depth and duration are unknown. Valuations are cheap, but not so cheap as to drive a meaningful increase in our risk appetite at this juncture. Rather, we have maintained or raised cash and are gradually nibbling into our favoured asset classes and taking profit in areas such as long duration that have done well.

Portfolio

In the Threadneedle Dynamic Real Return Fund, this has meant adding to Asian and US equities. Asia is furthest along in fighting the virus and is supported by plenty of policy stimulus. US equities provide our clients with more exposure to quality global businesses with strong balance sheets. Meanwhile, we took some profits in US TIPS (Treasury Inflation-Protected Securities), which rallied as markets sought safe havens and discounted central banks moving to their lower policy bounds.

20 March 2020
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

Coronavirus/market volatility: Dynamic Real Return Update

1 Bloomberg, 18 March 2020

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

17 May 2022

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – May 2022

Our fixed income team provide their weekly snapshot of market events.
Read time - 3 min
6 May 2022

Mark King

Head of Investment Content

Market Monitor - 6 May 2022

Rising interest rates and the threat of a new global recession have caused renewed turbulence on stock markets around the world this week, with high levels of uncertainty and anxiety among investors leading to major swings.
Read time - 2 min
6 May 2022

Richard Colwell

Head of UK Equities

UK is a rich seam to mine … and not just in commodities

It’s been a volatile start to 2022, with the conflict in Ukraine creating huge disruption in oil markets, and adding to ongoing pressures seen in markets, but the UK is about much more than just commodities (and banks)
Read time 9 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.