In these days of unprecedented volatility and uncertainty, the two questions I get asked the most by investors are as follows:
- Should I go to cash (or, are we putting the CIE portfolio into cash)?
- What is the outlook for dividends?
Unfortunately, at this stage, both are dependent on the eventual outcome of the spread of Coronavirus and the associated economic damage that this causes.
We know that this sell-off is significant both in time (very quick) and severity (large falls). The market is pricing in a large dislocation and recession at this stage. Could it get much worse? It’s certainly possible. A negative feedback loop could drag the world into a long and protracted economic downturn.
The positives are that the responses from the global monetary authorities, in conjunction with policy initiatives from governments the world over, are clearly aimed at repairing the economic damage. These actions are enormous.
For markets to rebound, the rate of growth of the virus must slow in the next two to three months and, the ongoing actions by authorities and governments to stem the damage need to gain traction.
One thing that is clear: though this is a serious and unprecedented shock on a global scale that will have a lasting and negative impact on many, the world is not about to end. Markets and economies will rebound. Exactly when and how quickly, no one knows.
A wholesale move to cash at this point in the CIE portfolio would imply the most bearish of potential outcomes for the global economy, an outcome that we haven’t endured since the GFC or even the Great Depression. Crucially, having a large amount of cash would have to be tied to a clear plan to reinvest given the perils of attempting to time the market.
Contango Income Generator Limited remains overwhelmingly invested in, what we believe to be, quality companies with strong businesses and finances. Some of these companies will most certainly be challenged as sales revenues grind to a halt for a period. CIE has sufficient cash holdings to participate in any capital raising that may arise so as to avoid any dilution to existing investments. At this stage out of the 48 companies invested in, we estimate that perhaps 3-4 may requiring additional funding.
WCM Global Long Short Limited | Proposed restructure to address share price discount to net tangible assets