10 March 2020

As you receive the February fact sheets we have seen dramatic falls across world stock markets in March as a result of the need for social distancing arising from COVID-19. This has brought large parts of the consumer facing side of major economies to almost a complete halt. Because this is a situation without precedent in our lived experience and there are a great number of unknowns about how long this situation persists for the market reaction has been extreme, and we fully appreciate the anxiety and difficulties that this presents you with, as the fall in fund values has been large. We, like many others from politicians, to company management teams, to market participants, have gone through the phase of underestimating the level of the disruption, through the realisation that we would have to make major adjustments to each of our lives, to understanding that the social, economic and financial challenges of the disruption are huge and difficult to predict.

The market is going through a phase of shock similar to that of 2008. In this phase it is very easy to make huge miscalculations because not enough information is available to understand where things are heading. If 2008 is anything to go by, in this phase the market goes from being too relaxed about the major problems arising to significantly over-estimating their long-term impacts. While standing in the very midst of the crisis it is very difficult to keep perspective. What in February we may have rationalised as a deep but short term problem, in March, now the shutdown has started, appears to present systemic threats and an unending series of upsets as we feel our way down the painful path of minimising the number of tragedies caused by the virus.

Over the next few weeks we would expect the market to begin to adapt to the new normal, as panic selling eases and more information becomes available about how long the economic shutdown is going to persist, how likely it is to recur, and when some medical breakthroughs will be made to deal with the underlying problem. As this happens the market should find its feet again and much more reasonable assessments can be made about the valuations of businesses again. Our job right now is to try to remain level headed, to do the detailed work on our investee companies and potential new investments, so that we can have confidence in their ability to recover when the tide does turn.

We are very much thinking of you, the investors in our funds, wishing you safe keeping and good health as we go through the next few months of this crisis, and wanting to express confidence that the economy can be re-assembled and thrive again when it abates. We are doing all we can to ensure that the companies we invest in on your behalf are strong enough to be part of the recovery.

by Dr Paul Jourdan CEO of Amati Global Investors