Wealth managers can’t predict pandemics – but here’s what they can do

With stock markets going topsy-turvy, investors are increasingly turning to financial experts and wealth managers to help them navigate the financial uncertainty caused due to the ongoing pandemic.

It is tricky for any wealth manager to predict what is in store. The world economy seems to be on the brink of a recession owing to the abrupt lockdown amid the pandemic but some countries are also showing signs of recovery. 

However, there are certain steps which may prove useful in finding value even in such market conditions or at least limiting the risk at a time when fear and anxiety seem to be driving most investors’ decisions.

Rebalancing the portfolio

Since several sectors, especially travel and tourism, are worse hit, rebalancing your portfolio at this juncture may be a very viable option. Prominent billionaire investor Warren Buffet recently told the shareholders of Berkshire Hathaway that he sold all the company’s airlines stocks.

Buffet predicted that the airline industry will go through a major change and that the sector will witness a higher level of uncertainty. In light of the current travel restrictions, Buffet predicted tough times ahead for the aviation sector.

The process of rebalancing your portfolio, therefore, quite simply is selling the asset classes that are over-allocated owing to the changing trends in the market and buying those that are under-allocated.

Additional Read – Why Rebalancing your Portfolio is Necessary for a Post-pandemic World

Sectors that may grow despite the pandemic

Fear of coronavirus spread has forced nations across the world to announce harsh measures such as temporary closing of industries, shops and restaurants. However, the essential services and industries are still operational.

• Healthcare: Ever since the market logged a record decline amid the COVID-19 pandemic, experts were busy looking for companies and sectors which could brave the slowdown caused due to the crises. One sector that can ultimately drive growth during this pandemic is undoubtedly the pharmaceutical sector. Markets have already seen pharma stocks perform better than their peers owing to the increased demand for medical products. Even the chief of the Federal Reserve while announcing an emergency rate cut said that the ultimate solution is expected from the medical profession.

• Telecom:  Indian telecom companies which were facing crises owing to the huge debt on the industry, have finally had a breather. The COVID-19 lockdown caused millions of professionals to operate from home which has caused a higher demand for internet and other related services. Investors have therefore chosen to cut back their investments in other sectors and pool those funds in telecom stocks. Since the future of office space is still uncertain, the telecom companies may continue to add more and more subscribers.

• Safe-haven assets: Like every other crisis, be it the 2008 financial crises or the massive volatility caused in the financial markets due to the US-China trade war, investors are going for traditional safe-haven assets like gold. The precious metal has had a record run during the pandemic. It had topped its previous highs on multiple occasions in just the past two months.  Despite the fact that Gold itself doesn’t produce anything, investment in Gold is known to come at a time of heightened uncertainty.

• Insurance: Ever since the Insurance Regulatory Development Authority of India asked the insurance providers to cover COVID-19 their policy, a surge in demand for insurance products has been registered. Besides, this sector posses a counter-cyclic nature, therefore, investing in insurance stocks have proven to be a sound decision during this pandemic.

(Source: Indian Express)

The prediction conundrum

Predicting a market and repositioning aggressively may lead to issues. Past experience of crises suggests that it may not be wise to exit the markets in a panic. Investors may lose an opportunity to benefit from long term gains if they choose to make wrong decisions under adverse conditions.

Additional Read – Investing Advice by Experts for Investment in Post Pandemic World

Conclusion: A crisis of this magnitude is hard to deal with.  Wealth managers have an added responsibility to be cautious while dealing with investor wealth. During such times, one doesn’t expect managers to paint a rosy picture of the economy, therefore, they should move away from their usual script.  This may be the right time to rebalance the portfolio and reaccess each sector’s performance during such times.

At a time like, a sound wealth management firm can do wonders for your portfolio. The Tata Capital Wealth provides bespoke solutions to help you navigate financial markets, and guides you towards products that are suited to your unique needs.