In any global event, it is essential to maintain an independent, critical, and rational mindset. Whether it is a viral outbreak, impending trade war or an economic crisis, we are always cautious about over-speculation. In most cases, misinformation may even worsen the situation.
In a typical mutual fund, the manager will not be able to react to market changes as he is bound by the fund’s mandate. For example, a China-only mutual fund is obliged to buy only Chinese investments. These funds may even have a mandate where clients are not allowed to hold more than 10% cash at a single time. In this case, unless the client has set a time on the fund and does a voluntary redemption, there is nothing the client (and the fund) can do.
Eu Capital’s portfolio is currently in an allocation where we are able to take advantage of either outcome of a global shift, whether good or bad. This makes us resistant to major changes in the economy, because we have the autonomy to make our move. For now, it depends on how deadly this virus becomes and how long it will take before the worst is over. If it goes away soon, we might ride through the period. If COVID-19 turns out to have a much more severe spread, it’s better to withdraw from the market for now.
Our portfolios have withstood countless shocks in the past; this is largely due to the resilience of the businesses we invest in. As investors who look to long-term opportunities, we do not propose bespoke investments to fit the ever-changing global events. What this means is that we do not buy stocks of medical companies just because of COVID-19. We don’t trade the news, good or bad. We trade based on our valuation model.
Contrary to a few hedge funds out there in the market, it is also not our practice to short the market because we do not leverage or trade on credit. Our asset managers do not adopt investment practices that benefit from market turmoil, nor do we look to earn more than what we can with our own money.
Markets have always gone down and have always come back up. Our job is to analyse financial statements of businesses so that we know which ones do well in the long-term and which businesses are potential minefields.
Because in our eyes, businesses that do well in the long-term represent the future. That is where we want to invest in: the future of our world.