Special Update - A Shift to Underweight Equities has Been Made

Feb 25, 2020 | Nick Scholte


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Community spread of the coronavirus outside of China has prompted a warning from the CDC. A special investment panel hosted internally by RBC suggests the economic impact of the coronavirus may be underappreciated.

To my clients:

Spread of the coronavirus outside of China continues. “Community spread” of the virus in a handful of other countries is now occurring (i.e. viral spread unrelated to travel to affected areas).

While improving economic data the past several months had me openly contemplating adding back an overweight position to equities (stocks), the continued spread of the virus had me holding off. Further, this past weekend, the large increase in cases outside of China had me contemplating a reduction in equities. In the past 24 hours, an internal RBC sponsored special investment panel, consisting of market strategists and virologists, convinced me to follow through on this course of action. The main take away from the panel was that although the ultimate outcome of this outbreak need not be dire, the consensus was that the mainstream appreciation of the economic impact is being underappreciated. Supply chains and the consumption of goods and services in affected areas are sure to be significantly diminished. Therefore, early this morning, the equity holdings of discretionary clients were reduced, on average, 10 to 15% below the long-term equity targets identified in the individual Investment Policy Statement of clients. Stated another way, clients are now underweight equities (stocks).

Subsequent to my decision to reduce equities this morning, Dr. Nancy Messonier, Director of the National Center for Immunization and Respiratory Diseases said “it’s not so much of a question of if this will happen in this country anymore but a question of when this will happen.” Messonnier said that Americans “need to prepare for a significant disruption” to their lives and plan for possible school closures, find out about teleworking options and if their health care providers offer telemedicine options”. Market declines accelerated after Dr. Messonier’s comments.

Bottom line: I am actively monitoring and managing client positions through the current market environment, and clients have been positioned toward a defensive posture.

All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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Any recommendations herein are for the exclusive use of clients of RBC Dominion Securities and Investment Advisor Nick Scholte. Any other direct or indirect recipient of this email should consult with his/her own licensed investment advisor prior to implementing any investment action he/she may be contemplating.

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