Adviser Points of View managed to catch up with David MacDonald, founder of The Path, an ethical pensions and investment firm. We asked Macdonald about the global financial markets’ volatility and what investors should be doing with their portfolios.
What should investors be doing in this time of global stock market turbulence?
During times of extreme market volatility, it is important to remember that investing is a long-term activity. History indicates that acting hastily in the middle of a crisis is typically unhelpful, and we would encourage all investors to step back and maintain perspective.
When we invest on behalf of clients, it is with a five-year view of the opportunities that a company has to grow. Clearly, many such companies will be impacted in the near-term by the abrupt economic slow-down which is unfolding, and stock markets have factored this heavily into prices. However, our view is that such selling has been relatively indiscriminate and driven by fear rather than long-term fundamentals.
Companies with growing opportunities, competitive advantages and strong balance sheets are not only well-placed to survive short-term pressure but should resume their positive trends when the current crisis is over.
The funds in our portfolios are all actively managed by external fund managers – they will be making individual decisions and considering opportunities to add to holdings in companies they admire at depressed prices.
In recent years, there has been a growing focus amongst investors and the public on the benefits of companies acting responsibly towards all stakeholders, including employees and customers as well as shareholders. We will learn much about their commitment to such concepts in coming weeks.
“Virtually all markets are looking cheaper than they did a month ago. But is it cheap?”
Should investors just not invest at all? Or invest in alternatives?
The recent performance of our portfolios has been a good illustration that impactful companies can outperform traditional sectors both in rising and falling markets. We appreciate how stressful it can be to see markets fall dramatically, but we have strong conviction in our positioning, and believe that our portfolios are well set to take advantage of a recovery once the dust settles. We are not planning to make any changes right now; we are sticking to our mandate and investing in profitable and well-run companies whose core purpose is to make a positive impact on society and the environment.
Are there any stock markets looking cheap at the moment?
It’s said that the only market where people don’t buy when there is a sale on is the stock market. Virtually all markets are looking cheaper than they did a month ago. But is it cheap? Well you either don’t know, or you don’t know that you don’t know. As ever, we would say that ‘time-in rather than timing’ is the key.
What are the benefits of impact investing?
The speed and the magnitude of the fall has caught a lot of traditional investors by surprise, but less so impact-minded investors. Over the last two weeks, energy, mining and banks have been the worst performing sectors.
Healthcare, real estate and utilities have been the most resilient. We have benefitted from a zero exposure to non-renewable energy and underweights to mining and banks. These underweights are both a reflection on the negative or limited impact those sectors have on society as well as on concerns around their valuations. In the meantime, our overweight in healthcare, real estate and utility companies have helped limit falling values.