March market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of March 2020.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.


The first quarter of 2020 was dominated by the deadly COVID-19 pandemic that engulfed the world during February and March, sparking huge macroeconomic uncertainty globally.

Global investor sentiment remained broadly stable through In the early part of the quarter, despite a brief flare-up in US/Iran relations that had threatened to destabilise oil markets and the Middle East region. However, the emergence of the COVID-19 outbreak quickly affected financial markets from mid-February onwards. Emerging market equities were the first to be hit, reflecting the fact that the early part of the crisis was centred on China and its near neighbours. Steep falls in stockmarkets around the world then followed, as policymakers scrambled to provide monetary and fiscal support and populations went into lockdown. The oil price retreated as a result of a Saudi/Russia spat and amplified the levels of distress in the markets. Demand for ‘risk-free’ Western government bonds spiked, before later cooling off again. In the currency markets the US dollar strengthened against most major currencies, fulfilling its role a safe-haven currency in times of market stress.

Equities (or shares)

European stockmarkets tumbled in the first quarter of 2020 as the spread of coronavirus around the world rattled investors. The year started positively with major stockmarkets climbing to record highs when the US and China reached an interim trade deal. The upbeat mood quickly faded and share prices fell sharply amid fears that the coronavirus outbreak would lead to a global economic recession. Consumer staples, healthcare and utilities were the best-performing areas as investors sought shelter among defensive businesses that are perceived to be resilient in challenging economic conditions. In contrast, energy stocks plunged as oil prices declined on concerns about weak demand and a price war between Russia and Saudi Arabia. Financials and industrials were notable laggards too. In the US stockmarkets fell rapidly as it became clear that COVID-19, and the measures being taken to contain it, would have a huge impact on the global economy. 

What do you mean by Equities?

  • Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
    • share prices may increase as the value of the company increases.
    • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset?

  • Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).
  • The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

UK government bonds (gilts) were one of the few areas of the market to deliver positive returns in the first quarter of 2020, as investors sought refuge in traditional safe havens. The prospect of further interest rate cuts and other central bank stimulus measures against a darkening economic outlook, saw 10-year gilt yields fall below 0.2% for the first time ever in early March. With risk assets selling off across the board, UK corporate bonds experienced sharp declines over the quarter.

International core government bonds held up relatively well, again helped by their perceived safe-haven status in times of market stress and uncertainty. In response to the deepening coronavirus crisis, governments and central banks in both developed and emerging countries announced huge economic stimulus measures.

What do you mean by Fixed Interest?

  • Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  • Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  • In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  • Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

  • On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  • Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.


UK commercial property recorded small positive total returns in January and February according to property consultant CBRE. However, material uncertainty clauses were introduced by valuers in mid-March, following the outbreak of COVID-19.  It is too early to say what the impact may be, but major reductions in transaction volumes and leasing activity are expected, as decision-making is delayed. For the first two months of 2020, capital values and income increased in both Industrials and Offices, whereas valuations in Retail continued to be affected by negative sentiment, in the face of structural challenges. Furthermore, the sector now has to contend with an environment where all but essential shopping is prohibited

What do you mean by Property?

  • For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  • The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

  • Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  • The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  • This leads to a number of risks for funds investing in property:
    • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
    • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    • There may be delays removing your money from the fund if property cannot be sold.
    • Property fund valuations may be revised periodically, upwards or downwards.
    • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.

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