The V, U, or L shape: Investing ideas for recession recovery scenarios (Webinar recap) | BetaShares

The V, U, or L shape: Investing ideas for recession recovery scenarios (Webinar recap)

BY betashares | 1 April 2020
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The V, U, or L shape: Investing ideas for recession recovery scenarios (Webinar recap)

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The global financial system has experienced a month of chaos as the surge in cases of COVID-19 around the world has sent markets into freefall. Increasing rates of infection, reactive policy responses enforcing lockdowns, and declining sharemarkets appear to have set global economies on the path to recession.

Our recent webinar with BetaShares Chief Economist, David Bassanese and Director of Capital Markets and Adviser Business, Adam O’ Connor, discussed the impact the coronavirus is having on the economy and the investment opportunities and risks the pandemic presents.

During the webinar Adam presented investment ideas for three scenarios based on David’s economic outlook.

VUL recession scenarios

The V – “It’ll be over soon, buy the dip”

In a V-shape recovery, the market recovers strongly from here as the worst case has been priced in. In this scenario, investors are looking to take advantage of attractive entry points for long-term asset allocation.

One option here is to allocate to broad Australian ETF exposures, remembering that while you can’t control the market, you can control your costs.

For investors looking to gain exposure to the U.S., there’s a strong case for exposure to technology companies including Microsoft, Alphabet, Apple, Facebook and Amazon.

Potential opportunities for experienced investors looking to utilise leverage without margin loans are funds which provide geared exposure to the Australian or U.S. market without having to risk more than your initial investment.1

Funds to consider:

The U – “The worst almost over, but slow recovery ahead”

In a U-shape recovery, while the worst may be nearly over, some market sectors are set for a slow road to recovery.

Investment options for this type of environment may include an allocation to high-quality companies with stable earnings, low debt and high return on equity, and ASX-traded hybrid securities.

Funds to consider:

The L – “The worst has yet to come”

In an L-shape scenario, we have yet to see the worst for the market.

Bear funds offer the potential to protect against, or profit from, further falls in the market.2

Other options for those who have a negative market outlook may include traditional safe haven assets such as gold, cash, and longer duration government bonds. Managed risk equities may be another alternative, as they seek to reduce the volatility of equity market returns and defend against losses in declining markets .

Funds to consider:

Of course, investors should always consider the suitability of any potential investment or strategy in light of their own circumstances, including tolerance for risk, and as a component of a broader portfolio.


1. Gearing magnifies gains and losses and may not be a suitable strategy for all investors. Investors in geared strategies should be willing to accept higher levels of investment volatility and potentially large moves (both up and down) in the value of their investment. Geared investments involve significantly higher risk than non-geared investments and investors should seek professional financial advice before investing, and monitor their investment actively.

2. The Bear Funds’ strategy of seeking returns that are negatively correlated to market returns are the opposite of most managed funds. Investors should seek professional financial advice before investing, and monitor their investment actively. An investment in any of the Bear Funds should only be considered as a component of an investor’s overall portfolio. BBUS and BBOZ use gearing as part of their investment strategy, investors are referred to the above warning regarding geared exposure.

3 Comments

  1. Reinhold  |  April 1, 2020

    I have tried to find a Health Care ETF in the Australian market. It appears there in none. Isn’t it obvious companies in this sector would be finding favourable market conditions?

    1. Benjamin Smith  |  April 8, 2020

      Hi Reinhold,

      Thanks for reaching out.

      Unfortunately, we do not offer a purely Australian healthcare company ETF at this point in time. We do, however, offer a Global Healthcare ETF (Currency Hedged) with the ticker DRUG. You can find more information on this fund via the webpage: https://www.betashares.com.au/fund/global-healthcare-etf-currency-hedged/.

      It’s also worth noting that the Australian Sustainability Leaders ETF (FAIR) currently has a 28.6% exposure to the Australian healthcare sector: https://www.betashares.com.au/fund/australian-sustainability-leaders-etf/.

      Sincerely,

      BetaShares Client Services

  2. Prakash Rajen  |  April 2, 2020

    Hello,

    This is very informative and helpful.

    Can you please advise if the ETF’s; HVST and YANK are considered to be prudent to invest? If yes, on which category are they likely to fall under?

    V, U or L ?

    I would appreciate your advise.

    Regards
    Prakash

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