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.
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