A Message from Verger, March 12, 2020: Update and Implications of COVID-19

Thursday, March 12th, 2020

Verger continues to closely monitor the situation regarding COVID-19 (Coronavirus) taking into consideration guidance provided by the CDC, regulators and local health officials.  We are focused on maintaining the health and safety of our team and would like to share our approach to business continuity.

 

In an effort to participate in the global and local efforts of containment, Verger is limiting business travel and leveraging the use of teleconference and videoconference meetings whenever possible.  We are encouraging a judicious approach to personal travel and participation in large social events and will enact remote connectivity for team members as appropriate.  Additionally, based on recent testing of our business continuity systems, we are confident in our ability to maintain connectivity and productivity with team members, clients, managers, and service providers.  Verger is staying up to date with guidance from regulatory agencies and decisions are being examined daily by the leadership team.

 

Given the recent global market activity, we also offer insights into what we are seeing and hearing and the implications for portfolio positioning.

 

Over the last few quarters, Verger has noted concerns about the Fed and the discounting of fundamentals which tends to result in exaggerated equity valuations.  We have also anticipated the potential for over-leverage in the BBB credit markets and the dangerous reach for yields that comes with late cycle behavior.  It appears that the increasing concerns surrounding the virus paired with geopolitical posturing between OPEC and Russia related to oil supply have provided the catalyst for broader market concern around these themes and others.

 

The recent market sell-off has generated speculation that we may be revisiting the turmoil of the 2008-2009 financial crisis; however, we do not believe that this is history repeating itself.  Unlike 2008, this is not a banking, liquidity, or mortgage crisis.  Instead, the global economy and markets are going through an overdue correction, years in the making.  While there were signs of a slowing global economy before February, the Coronavirus has been an incendiary accelerant to the global markets. The additional concern is that we go from cycle to cycle with increasing levels of market intervention.  The question remains – what tools and dry powder are still available for central banks and governments to respond to this dislocation?  While this concern manifests as increased market fragility in the short-term, we also hope to take advantage of any opportunities presented by the current market dislocation.

 

While we continue to carefully monitor plunging equity prices and Coronavirus-stoked recession fears, we remain confident in our positioning and investment approach during these challenging times.  Our portfolio allocation remains tilted to a lower beta portfolio.  Our long-short allocation, relative value hedge funds, higher quality credit positions, and active hedge overlay are working as expected.  We feel this lower beta position should allow us to weather the near-term volatility and take advantage of opportunities as they present themselves down the road.

 

Our thoughts are with those who have been impacted by COVID-19.  We also share our appreciation for the healthcare workers and scientists seeking to stem the outbreak and find a solution. We are prepared to address any questions or concerns regarding Verger’s response to the current market dislocation.  Additionally, we stand ready to serve as a resource in any capacity you might find helpful.  Please reach out to Patrick Decker (215.510.0381, pdecker@vergercapital.com) or Wesley Carroccio (610.659.9168, wcarroccio@vergercapital.com) should you want additional information.

 

The information provided here is for general informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security or a guarantee of future results. This article also does not constitute an offer to sell or a solicitation of an offer to buy interests in any particular security, including interests in any Verger Capital Management investment vehicle. This article may include “forward-looking statements,” such as information about possible or assumed investment returns or general economic conditions. Actual results may differ materially from the information included in this article and no information in this article will be updated to reflect actual results or changes in expectations.