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”Eagle Asset Management | Vermont Investment Team
Pandemic prognosis: More volatility
The market remains resolutely focused on the rate of COVID-19 infections, deaths, and potential therapies. The shelter-in-place orders were meant to prevent excessive burden on our healthcare system. Whether it was because of or in spite of these measures, broadly speaking, the healthcare system was not overwhelmed. If anything, it faces risk of underutilization. While the number of infections appears to be increasing in at least a dozen states, politicians appear to be taking a more targeted approach to shutdowns. Despite worrying signs, we still do not expect a repeat of widespread lockdowns unless the number of hospitalizations increases beyond the current capacity of hospital systems. Furthermore, the unified effort in the pharmaceutical and biotech industries is encouraging. However, there is no guarantee a vaccine will be approved and broadly distributed to the public within the next 12 months, if ever. News around therapeutics and hospitalization rates is likely to be a source of volatility moving forward.
Moreover, in response to the potential economic impacts, which to date remain uncertain, both fiscal and monetary policy makers from around the world have injected unprecedented amounts of liquidity and fiscal stimulus into the economy. By some estimates, this assistance may amount to nearly 50% of GDP. Such actions helped reduce near-term liquidity concerns, aided near-term economic activity, and significantly boosted financial asset prices. We remain skeptical of the long-term implications and the extent that such actions will truly aid the long-term health of companies as well as the financial well-being of our population, particularly those who do not own financial assets. That said, we acknowledge their upward impact on financial assets.
To that point, while improved trends have recently aided financial assets and resulted in reduced volatility, we continue to see uncertainty and heightened risk of policy error. Trying to position portfolios for one outcome or to time the next move in asset prices is a fool’s errand. We focus on seeking and investing in durable franchises — profitable companies with proven management teams, low leverage, stable operating results, and defensible, differentiated business models — and establishing prudent valuation methodologies. We expect, however, that bouts of extreme volatility (and potentially erratic drawdowns) will rear their heads again within a reasonable investment horizon. We stand ready to capitalize on irrational price movements and bring liquidity to assets that may be sold (or bought) indiscriminately during times of distress. This process has consistently generated alpha on a historical basis.
About Eagle Asset Management
Eagle Asset Management is built on the cornerstones of intelligence, experience, and conviction, driven by research and active portfolio managers. Our long-tenured investment teams manage a diverse suite of fundamental equity and fixed income strategies designed to meet the long-term goals of institutional and individual investors. Our teams have the autonomy to pursue investment decisions guided by their individual philosophies and strategies.
Disclosures
All investments are subject to risk. Asset allocation and diversification do not ensure a profit or protect against a loss. There is no assurance that any investment strategy will be successful or that any securities transaction, holdings, sectors or allocations discussed will be profitable.
This material may include forward-looking statements. These statements are not historical facts, but instead represent only beliefs regarding future events, many of which, by their nature, are inherently uncertain. You should not place undue reliance on forward-looking statements as it is possible that actual results and financial conditions may differ, possibly materially, from the anticipated results and financial conditions indicated in these forward-looking statements.
There are uncertainties, unknown risks, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements.
The statements above are based on the views of the advisor and are subject to change.
The information contained within does not represent a recommendation to buy, hold or sell any security and it should not be assumed that the securities transactions or holdings discussed were or will prove to be profitable. All holdings are subject to change daily. The information presented is not tax, investment or legal advice. Prospective investors should consult with their advisors.
Indices are unmanaged, and one cannot invest directly in an index. Indices do not reflect any fees, expenses or sales charges.
Definitions
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total-return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.
P/E ratio measures a company’s current share price relative to its per-share earnings.
Gross Domestic Product (GDP) is the total value of goods and services provided in a country during one year.
Alpha measures performance against a benchmark.
Beta measures the sensitivity of an investment to the movement of its benchmark.
The MSCI ACWI® (All Country World Index) measures the performance of large and mid-cap stocks across 23 developed markets (DM) and 24 emerging markets (EM) countries.
