Nobody left unscathed
April 11, 2022
In a way, the start to this year was much like the start to 2020. It was a first quarter that all traders would rather forget.
Generally speaking, the world usually gets a break from major economic crises or geopolitical disasters; but sadly this year, one has simply followed on from another.
This was supposed to be the year the world recovers from Covid, but instead, it will be the year that started with a tech crash, which was subsequently, and very quickly overshadowed by the invasion of Ukraine.
A stock selloff so big it led to the worst quarter in history for a dozen S&P 500 stocks, as investors punished pandemic darlings and highly valued tech companies, subtracting roughly $1.5 trillion in market cap.
This equates to just over £1.5 trillion which is only a bit less than the value of the entire FTSE 100.
Tech companies took the brunt of a first-quarter selloff that was felt throughout Wall Street, as the Nasdaq Composite Index lost $1.99 trillion in market cap, its worst quarterly performance since the fourth quarter of 2018, according to Dow Jones Market Data Group. More broad-based indexes also lost more than $1 trillion in market cap but held up better than the tech-heavy Nasdaq, with the S&P 500 index declining by $1.46 trillion.
A couple of examples of the well-known names that were worst hit are Netflix and Meta (the parent company of Facebook and Instagram), which lost 37% and 33% respectively.
Meta’s LOSS equates to a market cap of $317.2 billion!
The largest company in the FTSE is Shell, with a TOTAL market cap of $213.5 billion.
The reason for such losses?
Not necessarily what you think.
This US sell off actually happened before the invasion of Ukraine. In fact the S&P 500 is around 5% higher now, than it was before the invasion.
Accelerating inflation, the start of another hiking cycle from the Federal Reserve and the start of tapering, has led to an inversion of the 2s10s yield curve. This is essentially when the market says that their long term view, isn’t a good one.
That turbulence meant that the majority of assets have lost ground over the quarter, with only commodities in positive territory.
Brent crude has soared 38% in the quarter, pushing up inflation everywhere and putting pressure on the world's biggest central banks to begin raising interest rates.
The dollar was up 2.8%, meanwhile, its third straight quarter of gains. A strong dollar typically hits the bottom line of U.S. multinationals hard, and usually implies the world is moving into safe haven currencies.
Tech bulls, which sadly, is most retail traders, got clobbered last quarter.
It could have been worse, and for a time, it was. The tech-heavy index actually climbed 3.5% in March making back some of it’s losses despite the Russian invasion.
Russia's principal exchange, the MOEX fell 28.2% even though it was shut down for most of March. In comparison to the Dax in Germany falling 10%, it looks to us like the Russian index should have more room to fall given the level of sanctions being imposed.
Tiger Global Management, one of the most famous hedge funds in the world, has incurred massive losses, sadly, $10 billion of which is money belonging to foundations, endowments and pension funds.
The fund is run by hedge fund legend Chase Coleman, who has made some fantastic returns over time. He gets paid to take risks, and make money in ways others can’t. In 2020 his fund made 48%, which is truly remarkable, however, last year this was somewhat sullied by a 7% loss, and now nearly a 40% drop in 2022 means that over the last 3 years, all gains have been lost.
In 2016 the fund was down 15%, but this was then followed by a 28% increase the following year. People like this, and funds like this, will always have swings, but ultimately, they receive huge investment because they do things others can’t, and they make profits that others can’t. Occasionally this will mean losses, but that is all part and parcel of the hedge fund world.
“In this moment, we are humbled, but steady in our conviction and confident about the go-forward opportunity,” the firm’s investment team wrote in a letter sent to investors.
Every trader’s response at a time like this, is to simply blame the markets. Wealth managers around the world will be citing difficult times, and saying, ‘look how much the market has fallen, there was nothing we could do.’
To some extent, this is fair enough, it has been a very difficult start to 2022 and it’s hard to make money when the tide is against you, but at The Portfolio Platform, we expect better.
We have been disappointed with our own performance so far in 2022, but we will always look to improve portfolios, and find ways to diversify and be ready for times of crises.
Sometimes our traders will do well as markets drop, but so far this year, too many have been on the wrong side and so we have taken a hard look at how we can make our platform, even better and reduce volatility for our users.
There are currently 2 ways we can do this.
The first is to simply asses the work our traders have been doing, monitor them, and if their strategies just aren’t competing with some of those we have currently trading ‘off platform’, then we may look to remove one, and replace them with another.
We strive to find the best we can. Track records have to be long and distinguished to be allowed to showcase, so we don’t take removing someone lightly. It is also very hard to say to a trader that made 60% last year, that he is taking too much risk and we are looking to replace him.
BUT, that said, if we don’t constantly look to improve, then we are no better than the many wealth managers out there who do absolutely nothing to increase performance. Our job is simply to provide the best performers we can to the market, and that is what we intend to do.
We are currently working with a couple of new teams who will soon be providing new strategies, and some of whom will also provide exposure to new markets adding the extra diversity we’ve been looking for.
Many respected commentators have already suggested TPP is the best investment platform available to investors (google us), and if we're being candid 'the best is about to get even better'. We only showcase elite and world class trading strategies on TPP. This is why the average return for 2020 was 58% and last year was 61%. Our traders are tasked with achieving 2-4 x market performance, but we also want to ensure they minimise volatility as much as possible. These new additions to our portfolio of strategies, will add another layer of quality to TPP, and we've therefore used an uncertain market period, to create a better proposition for you.
The second way to assist our clientele is to educate. By this I mean not only to keep doing our articles that we hope you all enjoy, but also to explain more about the various strategies we have, and how portfolios can be built, without over leveraging.
We have many strategies, all of varying degrees of risk:
Some are very active, and will have bigger equity swings than others. They will be long, short, very long….
Some are more ‘buy or flat’ meaning they are either in the market, or they are not.
Buying in at certain levels, then selling out and waiting, is proving to be very popular with our users. Strategies such as FTSE MKT Trader. They look to avoid drops (which seems difficult at the moment) and then buy back in.
Nobody gets to pick the moment a market reverses, but if you buy back in at a better level than you sold out, you are adding to annual returns by missing temporary drops.
The final strategies are the trackers. These are exactly that. They will track the markets. Having one of two of these is like having a normal ETF tracker only with a little extra leverage.
The best portfolio will have a mixture of all of these. Sometimes it pays to sit in the market long term, (trackers), sometimes getting out and waiting for opportunities is the best move forward (buy or flat), and sometimes you want an active strategy that might be long or short at any moment acting as a hedge for the others.
If you are ready to start building your TPP inspired portfolio and look for ways to take advantage of the current market volatility, then schedule a call with our team. You can do so by clicking here.
Have an excellent weekend.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020