March 27, 2020

Dear Clients and Friends,

We send our best wishes for everyone’s health and safety. We are writing with an update on our current thoughts on the markets and economy.

The world is currently dominated by uncertainty—both human and financial. The good news is that the U.S. economy was in good shape before this sudden onset recession. However, as the duration of the virus outbreak extends, it should not be assumed that the U.S. economy will simply pick up where it left off. In particular, the U.S. consumer who has buoyed the world through other difficult times is under intense pressure that could forever change habits, either from reduced buying power or reduced willingness, or both.

The aid package being finalized is broad and bold, but the size and scope of this crisis appears beyond even the most aggressive of packages. Some painful outcomes will be unavoidable. We are very likely in a recession which will show a dramatic contraction in global GDP and further increase in unemployment. Therefore, we remain conservative in our portfolio recommendations.

In terms of portfolio positioning, we are underweight stocks, overweight cash and neutral on bonds (with a strong underweight to credit risk). However, as long-term investors, we acknowledge that many stocks are now at attractive levels which reduces the urgency for further selling. On a daily basis, the whole team is intensely debating and managing the risk/reward trade-off between near-term terrible news and longer-term opportunities. We believe many of our holdings are well positioned and will survive and thrive after this crisis passes. There will be further opportunity to rotate and rebalance portfolios into new stocks that were formerly too expensive. It is also noteworthy that some very interesting opportunities are starting to arise in fixed income markets that have not been available for a very long time. We have been opportunistically investing in traditional fixed income throughout and are evaluating how and when to add to other credit opportunities as they arise.

While we are not doctors or epidemiologists, we have been rapidly consuming the data and analysis of a wide. cross-section of medical and investment experts. This is a combination of talking to Wall Street trading desks on market flows as well as attending conference calls hosted by our research providers with various experts.  Into the mosaic, we are also adding the experiences of our clients who are running businesses and have first-hand insights of the virus implications.

The team has been working extremely hard during this volatility and is working smoothly via remote access and technology. Please reach out to your Relationship Manager with any questions or concerns.

Thank you,

Jennifer A. Pline, CFA
Executive Vice President

David S. Lynch, CFA
Chief Investment Officer