The COVID-19 pandemic and the corresponding uncertainty in the financial markets necessitate a different approach to our Quarterly Market Update and Outlook. Importantly, COVID-19 is a health issue first and an economic issue second. In this report we highlight:
- Financial markets dislike uncertainty. We believe volatility will persist until the virus is contained globally or a medical solution (e.g., a vaccine) is developed.
- We recommend investors take a long-term view of the markets, and not focus on day-to-day volatility. This is a short-term shock to the system, not a structural issue as occurred in 2008. With a long-term view in mind, we are not changing our recommended asset allocation.
- The COVID-19 crisis and its disruption to our society and our prevailing modes of individual behaviors help to underscore the core tenets of impact investing:
- A consideration of our collective environmental and social well-being;
- a deep understanding of an investment’s positive or negative impacts;
- and sound corporate governance and transparency.
In Cornerstone’s view, following these principles will reward the long-term investor.
While we expect more evidence to emerge, we cite a few examples here that underscore the importance of investing with an impact lens:
- Governance in the public arena and private sector — in the form of leadership, planning, disciplined execution and adherence to safety protocols — is on full display as a differentiator in the consequences of the health crisis and its economic fallout.
- The underperformance of the fossil fuel sector, which predated this crisis, will likely continue. We can expect more investors will seek to reduce risk in their portfolios by implementing carbon-free investment strategies.
- People of color are being disproportionately impacted, both physically and economically, by the pandemic. Disproportionate impacts have also been recorded among poor and/or rural populations regardless of ethnicity. Demand for investments to promote greater social justice and reliable access to basic health care, nutrition and other basic services have already been heightened at the national and local levels.