Insights into Recent Market Volatility

Geoff Scott, MBA, CFA, Institutional Portfolio Manager, Cambridge Global Asset Management

The spread of the Coronavirus and the acceleration of cases outside China last weekend has been the catalyst to a swift market correction. There is still significant uncertainty over how the virus will continue to spread, which has certainly added to the speed and magnitude of the sharp correction we’ve witnessed.

Efforts to slow the virus’ spread have resulted in mass quarantines which will undoubtedly be a headwind to global economic growth. We have already heard from numerous businesses that sell directly into China or have significant supply chain exposure that are feeling the slow down. The economic impact will surely be felt and as this correction has occurred, the impact has been broad with travel-related industries and economically sensitive businesses seeing the largest impact. Cyclically exposed businesses like industrials, energy or pockets of consumer, or technology firms with significant supply chain exposure to China are among those industries. Our positioning into the year was pro- cyclical with high industrial and energy weights. We did not forecast a pandemic, however we have reduced cyclical positions through January and into February. Even so, we maintained exposure to the cyclical areas of the market, which impacted performance over this short and volatile timeframe.

It is important to remember that we should expect volatility as part of investing and market corrections occur with some regularity. While near-term disruptions are unavoidable, the wide-spread uncertainty and indiscriminate selling has provided attractive opportunities for investors with longer term time horizons. At times of heightened market volatility like this, we focus on what we can control and lean on our investment process to guide our decision making. Although we didn’t see this coming and don’t know how this pandemic will continue to spread, a key focus of our investment process is understanding a range of potential scenarios - both positive and importantly negative - and the resulting impact on the financial profile of a business.

Through this sell-off, like those in past years, we are looking to ‘high-grade’ our exposures where we can as we evaluate and reposition our clients’ portfolios to improve the overall risk/reward. With an uncertain path ahead, we are focusing our efforts on business models we’ve identified as the highest quality with clean balance sheets. These businesses are well positioned to weather the storm of economic disruption and become stronger through challenging environments by gaining share within their respective industries.

Although these market dislocations can be challenging for clients, we are actively monitoring our coverage list of business and repositioning to where we see the best risk/reward prospects going forward.

IMPORTANT DISCLAIMERS

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or an offer or a solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. The opinions expressed in the communication are solely those of the author and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither CI Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Cambridge Global Asset Management is a division of CI Investments Inc. Certain funds associated with Cambridge Global Asset Management are sub-advised by CI Global Investments Inc., a firm registered with the U.S. Securities and Exchange Commission and an affiliate of CI Investments Inc.

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Published March 2, 2020