As I stated in my last SMSF Positioning paper in early February, I had positioned with a strong allocation to gold which I then increased hedged to the euro for idiosyncratic reasoning.
Even though global stockmarkets fell sharply in March, I have been relatively quiet in my long-term investment portfolio. (In my more short-term portfolio where I held the short positions that I mentioned in “Repeat After Me, This is Not Sars: COVID-19 Is Much Worse” I trimmed positions after making very significant profits mid-March, which will act as a handy cushion should our household income be impacted by the pandemic as it has for very many Australian families.)
While I have been relatively quiet in my long-term portfolio, that does not mean that I was comatose. In mid-February I cleaned up my portfolio by selling a few underperformers, and I sold out of one of my preferred managers in selling out of Forager Australian Fund (FOR). That was not for any other reason than it was easily done being listed – as opposed to an unlisted fund – and because I was pre-empting a fall in the market. I have since rebuilt that position buying in several tranches as the market fell making my last purchase on 23 March @ $0.55 (just before a share buyback was announced, thankfully). I also nibbled (around 1.5% of our portfolio each) into my fund managers’ listed funds mid-March.
In the last few days, with the weakness in gold prices and bounce back in stockmarkets, I have been engaging in some tactical movements between a strong bear ETF and hedged gold which has increased the number of units held of the hedged gold ETF by almost 12%.
In the past quarter my long-term portfolio is up in the order of around 5%. On current valuations I have approximately 50% of my portfolio in gold in one form or another (hedged and unhedged in AUD, and hedged in EUR), 3% in cash, 10% in USD, 15% in medical/virology stocks, 3% in my scattergun stocks (recent IPOs and more speculative positions), and the remainder in my preferred managers’ funds (Australian and International equities).
I have been quiet because I do not consider it yet time to buy. If we are at risk of entering a depression, which is the risk I foresaw at the beginning of February, then I see no need to be hasty like many non-professional market participants have been conditioned to be over the last decade.
My behaviour is different to the GFC when I was more active and I had shifted probably around 20% of my portfolio into equities by the time the market was down 30%. For one I was fully in cash at the commencement of the GFC, while on this occasion I did not want to redeem from my fund managers’ unlisted funds even when I was very certain of a strong market fall. Secondly I am 12 years older and sequencing risk is a little more of an issue now (if you look in my manifesto you will see a discussion there – essentially heavy draw downs in capital 10 to 15 years before retirement have an equivalent impact on longevity of portfolios in retirement as in the first 5 years of retirement). I aim in the next few years to get to a near to 100% allocation to equities, but I am inclined to be a bit more conservative in allocating to equities given my proximity to retirement age.
Finally, I believe that there is much longer to run in this current episode. Again the talking head analysts on television are trying to kick start a FOMO psychology, but they are working against some well respected investors in the from of Howard Marks, Jim Rogers, Jeffrey Gundlach and Scott Minerd who have all cautioned in recent days that we are highly unlikely to have seen the end of the volatility. My comments on these pages should make it clear that I am inclined to agree with Mr Marks et al.
I note that today the US army resourced 100,000 body bags. It’s difficult for me to believe that we will not see markets go lower when the impacts of the pandemic are really only in the early stages of being felt in the home of the largest markets.
Nonetheless, I do have my shopping list beside the computer and some alerts set on the website that I use to track stocks of interest so I am ready to act when those alerts are triggered. In the mean time, I am unphased by whatever happens in the markets. If there is an enduring bounce in markets, and I miss the opportunity to buy stocks at prices below what they trade at over the next few years, then that would have to be on the back of an (albeit highly unlikely) improvement in the pandemic, and that would be an outcome that would be an outcome that I would celebrate wholeheartedly!
Finally, I remain very happy to be heavily invested in gold because the case for it is only strengthened by the enormous spending already committed globally by nations. In bullish and bearish scenarios for equities, the value of gold in portfolios remains in tact. And I remain biased towards owning a high proportion of assets in non-AUD.
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© Copyright Brett Edgerton 2020
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