COVID-19: A time for humility
These are extremely challenging times for everyone in society. First and foremost, this is a healthcare and humanitarian crisis. And our thoughts are with all those who are directly impacted.
The near-term economic outlook will undoubtedly be weak. The only debate is how deep the decline in activity will be and how long it will take to recover. From a financial market point of view, one needs to ask how much of this expected decline is already priced, and to what extent the size and speed of support from both governments and central banks might mitigate its effects.
The problem is the answers are simply unknown, as they are reliant to a large degree on the evolution of COVID-19 and the choices that governments will make in response to the evolution of the virus.
One of the recurring questions I am asked is: What are the characteristics, or traits, that make a good fund manager? Many assume the answer is conviction, insight and intelligence. All of these undoubtedly have a role to play. The key trait, however, in my view is something different. It is a trait that many are uncomfortable discussing or accepting. The key ingredient for long-term success – and I use the expression long-term deliberately as our industry regularly falls victim to survivorship bias where we assess outcomes rather than the process that led to these outcomes – is humility. By this I mean a recognition that you may be wrong. It is a recognition that the future is very uncertain and that we do not have all the answers or information.
The primary driver for financial markets today is COVID-19 and we must all recognise that our ability to assess this is challenged. We are not virologists or epidemiologists.
In undertaking our analysis of the current macroeconomic situation and the risks, we have considered several different scenarios for the evolution of the virus. They are designed to help us frame the potential economic and market outlook, helping us plan for an eventual recovery.
Clearly, the economic situation is hugely uncertain. This will be the largest decline in economic output in recent history and the recession is just starting. Although it will be difficult, and at times may feel overwhelming, we must not lose sight of the fact that society will come through this. It is possible to see a path to better days ahead.
Our job is to do the best we can to deliver what our clients need. For investment professionals, the key will be selecting the right areas to invest, while also seeking to preserve capital in case moves are made too early.
As ever, the House View captures how we see the world evolving over the next couple of years. In these highly uncertain times, we think it is more important than ever to ground our investment decisions in this framework and to communicate that view clearly with clients.
About the House View
The Aviva Investors House View document is a comprehensive compilation of views and analysis from the major investment teams
The document is produced quarterly by Aviva Investors investment professionals and is overseen by the Investment Strategy team. Each quarter we hold a House View Forum at which the main issues and arguments are introduced, discussed and debated. The process by which the House View is constructed is a collaborative one – everyone will be aware of the main themes and key aspects of the outlook. Everyone has the right to challenge and all are encouraged to do so. The aim is to ensure that all contributors are fully aware of the thoughts of everyone else and that a broad consensus can be reached across the teams on the main aspects of the report.
The House View document serves two main purposes:
- First, its preparation provides a comprehensive and forward-looking framework for discussion among the investment teams.
- Secondly, it allows us to share our thinking and explain the reasons for our economic views and investment decisions to those whom they affect.
Not everyone will agree with all assumptions made and all of the conclusions reached. No-one can predict the future perfectly. But the contents of this report represent the best collective judgement of Aviva Investors on the current and future investment environment.