Balanced ETF portfolios Q1 2020 DKK commentary
| Asset classes | Stocks, bonds, non-traditional |
| Instruments | ETFs |
| Investment style | Macro, diversified investment focus |
| Quarterly return (net of fees) | |
| Defensive | -7.13% |
| Moderate-Defensive | -9.52% |
| Balanced | -12.3% |
| Growth | -14.2% |
| Aggressive-Growth | -17.1% |
Market overview
While 2019 proved to be a year of positive returns for most asset classes, the tide has turned dramatically since the beginning of 2020. January started with optimism as the phase one trade deal was signed between the US and China, but turned negative thereafter as concerns over the outbreak of the coronavirus started to control the markets. The fear of its negative effects on the global economy overshadowed the signs of an improving economy in January, and later resulted in deteriorating economic data in February and March. Volatility has since risen to levels not seen in a long while and led to a sell-off of risky assets. This, in addition to monetary stimulus from central banks across the globe, drove money into safe haven assets such as treasuries and brought the US Treasury yield to an all-time low.
In line with these developments, a strong sell-off of risky assets ensued. Within equity, developed market equities suffered with a delay compared to emerging markets as investors did not factor in the rapid spread of infections beyond Asia. US equity, which makes up a large part of BlackRock portfolios, as reflected by the S&P 500 for example, has dropped close to 30% since the beginning of this year. Japan has held up the best in US Dollar terms.
Looking at fixed income, sovereign debt of developed economies benefitted from this risk-off sentiment and monetary stimulus. This drove yields back deep into negative territory for most European exposures, while the 10Y US Treasury yield hit an all -time low in the middle of March. The riskier spectrum, however, suffered in line with equities. Emerging market debt and corporate bonds both suffered, particularly the high yield exposures.
Portfolio performance
| Returns net of fees | Defensive | Moderate-Defensive | Balanced | Growth | Aggressive-Growth |
| Jan | +0.8% | +0.67% | +0.29% | +0.14% | -0.28% |
| Feb | -2.74% | -3.87% | -5.07% | -6.05% | -7.10% |
| Mar | -5.27% | -6.51% | -7.89% | -8.79% | -10.5% |
| Since January 2017 | +0.48% | +1.03% | 1.01% | +1.45% | 0.08% |
The Multi-Asset portfolios ended the first quarter with negative returns. The portfolios’ performance suffered because the strategies were moderately risk-on while risky assets sold off.
Broadly speaking, on the equity side, all allocations contributed negatively to portfolio performance. In absolute terms, US equity was the largest performance detractor followed by European and EM equity.
Outlook
The pledged policy response to the coronavirus outbreak has been swift, and many initiatives signal an intention to do more if needed. Central banks are focused on the plumbing of the financial system, alleviating the dysfunction of market pricing and tightening of financial conditions; frontline fiscal policy, in coordination with monetary measures, is bolstering public health and helping to bridge cash flows to the businesses and households that need them. If such bridging policies are effective, the propagation of the coronavirus shock will depend on how long the activity shutdown lasts –and how long it takes to ramp back up.
With the pre-coronavirus financial system in relatively good shape, the economy appears better positioned for a sharp growth rebound on the other side of the shock –but it will take a bold, coordinated response from global policymakers to contain the virus, bridge cash flow pressures, and limit its propagation. The longer the stoppages last, the higher the risk of persistent damage to the economy. Amid heightened market volatility, it is important to keep a long-term perspective.