In light of the extreme volatility we’ve experienced this week, we wanted to continue to update you on events and our thoughts. However, to begin, we would like to make you aware of a tragedy that occurred in our hometown.
Cookeville-Putnam County Tornado
You may already be aware of the terrible, EF-4 tornado that devastated parts of our community, early Tuesday morning. The loss of life (18, including 5 children) and destruction of property (over 100 structures, many totally destroyed) are, simply put, overwhelming. Our team and families are all very fortunate that we weren’t directly impacted by this disaster. Many of you have reached out to us, and we are grateful. Many more of you may have tried to do the same, but due to the storm, our phone lines have been severely compromised. It was our plan to reach out to you directly with some of the information contained in this update but have unable to due to the interruption of service. We ask that you would keep our community in your thoughts and prayers in the days ahead. If you would like more information or feel led to donate on behalf of those who have suffered a great loss, you can go to www.putnamcountytn.gov/relief.
What We Know
It’s certainly troubling to see the number of cases rise in the US, especially when accompanied by a rise in the number of deaths. However, it’s important to remember that most cases do not result in extreme outcomes. It is also encouraging that the data from the outbreak in South Korea suggests the fatality rate for all ages is much better than what we’ve seen from China.
Investment Implications
In anticipation of the negative economic impact expected to be caused by the virus’ spread, the US Federal Reserve on March 3rd cut interest rates by .5%. This is only the eighth such inter-meeting cut on record and the first since the 2008 financial crisis. On Friday, the President signed into law a bill that provides over $8 billion in funding to fight the virus.
Until the full extent of the COVID-19 problem is known, good or bad, we expect high levels of volatility to continue. Accordingly, we made some small but intentional adjustments to better position our portfolios.
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3/3/2020 Sold Visa (Quality Focus)
- We sold in order to reduce risk and rotate toward opportunities with lower valuations.
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3/3/2020 Sold Nestle (Quality Focus)
- We sold in order to reduce risk and rotate toward opportunities with lower valuations.
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3/3/2020 Sold AstraZeneca (Income Focus)
- We have held AstraZeneca since 2016, its increase in price since then has resulted in a lower dividend yield. We are evaluating opportunities with higher dividend yields.
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3/3/2020 Sold India ETF (Opportunity Focus)
- Living conditions in some areas make slowing the outbreak of COVID-19 a real challenge. In addition, a significant spread of the virus could be a challenge to their healthcare system. Another holding we like long-term but have chosen to sell for now.
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3/3/2020 Sold Newmont (Opportunity Focus)
- Newmont is the largest gold miner in the world and has gone up during the COVID-19 issue. Gold miners have a mixed record of results during significant market declines, so we felt like we may have realized a good portion of the potential increase. We choose to take a bird in the hand on this one.
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3/3/2020 Sold Franklin K2 (Alternatives – Hedged Strategies)
- After significant review, we are replacing this fund with one that we feel better aligns with our overall strategy.
Looking Forward
As discussed in the previous letter, our portfolios currently hold extra cash. We expect to move towards fully invested in phases; note the order may change.
- Phase 1 - Complete some rebalancing for accounts where we paused while the news on COVID-19 was beginning.
- Phase 2 - We sold our hedged strategies fund, and plan to reinvest into a different fund. Hedged strategies have more risk than bonds but less risk than stocks. We plan to buy the second ½ of the GMO fund. This is a value-driven strategy that can shift between stocks, bonds, and alternatives based on valuation and opportunity.
- Phase 3 - Buy companies with solid balance sheets and strong dividends. Banks and energy are two areas currently in decline, but not sectors we expect to be harmed by this crisis in the long-term.
- Phase 4 - Buy growth companies and companies who have been significantly battered down by the focus on the short term impact of the virus.
Summary
We will continue to monitor investment conditions and search for opportunities. We aspire to take prudent actions toward the goal of helping each of you reach your investment and life objectives. If you have thoughts or questions about any of the information we've shared, or on any other subject, please don't hesitate to call us. We are grateful you allow us to serve you and your family, and we will continue to make every effort to justify the trust you've bestowed on us.
Sincerely,
Your CCA Investment Team
Advisory services offered through Cravens & Company Advisors, LLC, an SEC Registered Investment Advisory Company. Securities offered through and advisory services may also be offered through, FSC Securities Corporation, an Independent Registered Broker/Dealer. Member FINRA/SIPC. Not affiliated with Cravens & Company Advisors, LLC.
Investing involves risk including the potential loss of principal. Investing involves risk including the potential loss of principal. International investing involves additional risks including risks associated with foreign currency, limited liquidity, government regulation, and the possibility of substantial volatility due to adverse political, economic and other developments. The two main risks associated with fixed income investing are interest rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risks refer to the possibility that the issuer of the bond will not be able to make principal and interest payments. Investments in commodities may entail significant risks and can be significantly affected by events such as variations in the commodities markets, weather, disease, embargoes, international, political, and economic developments, the success of exploration projects, tax, and other government regulations, as well as other factors. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of FSC Securities Corporation. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis do not represent the actual or expected future performance of any investment product.