He notes that the firm had two positive days last week on top of strong year-to-date performance. “We were up 12% before the market went down, so a lot of the loss [approximately 10%] came from gain. I had some clients call and they wanted some reassurance of what was going on. But they know we don’t react to news stories. As long as fundamentals didn’t change, we are holding tight,” Garcia says.
Thomas Balcom, founder of 1650 Wealth Management in Lauderdale-by-the-Sea, Fla., said he is “coronavirus proofing” his portfolios using market-linked notes as a hedge to protect from further pullbacks.
Market-linked notes are multi-year instruments designed for investors who seek exposure to the performance of an underlying asset or market, but without the downside risk of a direct investment.
“We’ve been using indexed notes since 2008, but now that the virus hit there are areas in the market we’re looking at hedging and investing further,” Balcom says, noting that one option for this strategy could include the U.S. Global Jets ETF (JETS) which plunged about 25% in the last week due to investor fears regarding travel-related stocks. “So we are considering linking a note to the JETS ETF this week because obviously six months or a year from now, hopefully the coronavirus will have dissipated and Jet Blue and American Airlines will have recovered.
“A lot of advisors say, ‘stay the course,’ but I say if we have an opportunity we will better structure [our] portfolios,” Balcom adds. He says he has been proactively emailing clients to assure them that his firm was monitoring the situation and taking steps to protect their wealth.
Eric Walters, managing partner at Silver Crest Wealth Management in Greenwood Village, Colo., says he started hearing from clients last Thursday and Friday. “They are concerned about the novel nature of a pandemic and the sharp drop in the markets. I pointed out that in the three most serious flu pandemics in the 20th century, the stock market was mixed, but generally positive. I also shared historical data that a correction of 10% to 20% happens approximately every two years and is corrected within four months.”
Of course every situation is unique and this virus may lead to lower global growth and even rolling recessions for the countries most affected, Walter admits.
“However, I still recommend that long-term investors maintain their discipline and not sell,” he says. “Many of my clients are asking about rebalancing to buy into cheaper equities, which I feel great about because it shows they have a long-term mindset and listen to us.”