Optimism, Pessimism, or Realism?

The first quarter of 2020, ending 31 March, will occupy the annals of history as one of the worst 3-month periods for markets ever!

With the JSE All Share Index losing some 35% in line with global markets, the greatest challenge faced was to limit losses as investors found themselves with nowhere to hide. Losses ranged from a -3% on the Octagon Flexible Income Fund to a -17.5% on the Octagon Growth Fund. 

From the low-point of 24 March though, markets have recovered strongly and our funds saw strong, positive gains over the month of April across the board. By example, the Growth Fund’s recovery over the month has brought it to levels around -7.0% for the year to date.

We have been actively managing the portfolio throughout this time, seeking both protection and opportunities for investors. Our management of the fund has centered around a focus on managers who have a proven ability over challenging and volatile periods, and a track record of protecting capital during market sell-offs and limiting losses, as experienced during the month of March.

Has this downturn provided an opportunity to take advantage of lower prices?

Not quite.

While lockdowns continue to limit economic activity in countries across the globe, it is anyone’s guess as to how long the virus is going to keep economies and companies constrained, and operating below capacity. This raises mammoth questions around value – and without clarity or viable opinions on earnings, ascertaining whether a share or market is ‘good value’ is almost impossible.

As a result, we have maintained our cautious and defensive positions across all portfolios, while keeping some ‘chips on the table’ for the possible upside recovery and participation in this, when it comes. Like what we saw during the month of April, with markets rallying some 20% off their March lows, the benefits of holding quality assets through the market cycle are paid to those with patience, resilience, and long-term discipline.