The S&P TSX Composite Index screen at the TMX Broadcast Centre in Toronto on March 12, 2020, as markets dropped in the wake of COVID-19 developments.Fred Lum/The Globe and Mail
Five years after the onset of the COVID-19 pandemic, Globe Advisor is looking back at how the wealth management industry responded and how it has changed permanently. This article is the first in our series.
“This time is different” is a familiar phrase among investors who understand how the sentiment can lead to rash, ill-advised decisions.
Yet, as the World Health Organization declared COVID-19 a global pandemic on March 11, 2020, fear overtook people’s lives, the economy and markets more than any event in recent memory.
“People will always feel that ‘this time is different’ – even advisors feel it sometimes,” says Susyn Wagner, senior wealth advisor and senior portfolio manager with the Wagner Investment Management Team at Wellington-Altus Private Wealth Inc. in Calgary.
Looking back at the early days of the pandemic five years later, Ms. Wagner and other advisors say it did feel like a new, terrible world had suddenly emerged.
“COVID-19 was definitely different,” says James Brown, senior investment advisor with Langlois Brown Wealth Management at iA Private Wealth Inc. in Vancouver.
Like many other experienced advisors, he’d seen markets plunge before – during the dot-com crash, on Sept. 11, 2001, and during the 2008 global financial crisis.
“But this hit people physically, emotionally and financially all at the same time,” Mr. Brown says.
With runs on toilet paper and hand sanitizer, and schools closing along with workplaces, many advisors reached out to clients frequently in March, 2020.
“We were contacting them not just to provide updates but to listen to their concerns,” says Stan Wong, senior portfolio manager with The Stan Wong Group at Scotia Wealth Management in Markham, Ont.
“One conversation stood out during which a client told me, ‘I’m not so worried about the numbers; I’m more worried about what I don’t know.’”
Mr. Wong says the conversation was “a powerful reminder” that in difficult markets, silence from an advisor “can amplify the fear.”
In hindsight, what was one of the deepest, fastest bear markets in history, with the S&P 500 dropping 34 per cent in 23 days, also demonstrated the markets’ resilience in the weeks that followed.
The S&P 500 recovered from its bottom in a little more than 100 days. The TSX Composite index bottomed out in 22 days, falling about 37 per cent, Mr. Wong adds, and recovered in 199 days.
What followed was a bull market led by technology, prompting talk of a new Roaring Twenties that was then derailed by high inflation in 2022, leading to higher interest rates not seen in decades.
Yet, even that challenge gave way to equity markets reaching new heights amid investor euphoria for artificial intelligence, despite geopolitical anxieties.
‘Fear spread faster than the virus’
Like past market upheavals, the one in 2020 left its imprint on investors – an experience that could prove helpful as advisors manage a new bout of client fear and uncertainty around U.S. tariffs.
“March, 2020 was a crash course in investor psychology,” Mr. Wong says. “When the pandemic hit, fear spread faster than the virus.”
Mr. Brown says most clients, while anxious, trusted their advisors and their diversified portfolios. He also presented the sell-off as a buying opportunity, with quality companies on sale.
But a couple of clients still insisted on going to cash amid falling prices.
“They did eventually come back to the market … buying higher after watching a dramatic recovery,” he says.
Mr. Wong also saw clients struggle with their flight instincts.
“The stock market is the only place where when things go on sale, people run out of the store,” he says.
Ms. Wagner says many retired or near-retired clients benefited from the security of two cash reserves: one for two to three years’ of expenses; another for the unforeseen, including to take advantage of market opportunities.
“Some of the things we did in 2020, based on an unknowable situation, was to make sure the portfolio was defensive,” she says.
The overall focus remained on high-quality stocks even amid the recovery, Ms. Wagner adds. Avoiding growth-oriented names such as Peloton Interactive Inc. PTON-Q and Zoom Communications Inc. ZM-Q meant the portfolio underperformed the broader market during the recovery and boom.
“That said, going into 2022 when the market went down, our portfolio shone because of the focus on quality,” she says.
Portfolio diversification proved its value as “a shield,” Mr. Wong says. While bonds and equities both took a hit initially, both asset classes benefited in the months that followed.
“Certainly, when the levels of fear were very high when markets were oversold … we would take money out of fixed income to take advantage of drops in equities.”
Mr. Brown says clients learned from the pandemic experience.
“Clients are a little wiser that volatility can work to their advantage,” he says.
“Our client base is a little more market savvy.”