Benefits of Discipline and Diversification

One year after the fastest share market fall in history the Australian share market has almost fully recovered.

It was a year ago that the COVID-19 pandemic and associated lockdowns were impacting investment markets. The local ASX 200 index plunged 8.6% in a single day, sending many into a panic not seen since the middle of the Global Financial Crisis more than a decade earlier.

After diving as much as 39% from a record high of 7197 points in late February 2020 the share index suddenly bottomed and never looked back, rebounding by a whopping 48% in the 12 months to 23 March 2021.

Just as the economy has improved more sharply than expected, last month’s half-year profits showed Australian listed companies are in much better shape than many feared.  Dividend payouts have improved which is great news for income-seeking investors.

In the charts below, we aim to highlight how the scary numbers you see on the news each night are not necessarily reflected in a diversified portfolio.

The two charts below show the Muirfield Balanced portfolio (green) and the Muirfield Growth portfolio (yellow) compared with the ASX 200 index (an index made up of the top 200 companies listed on the ASX).

Muirfield Balanced Portfolio (GREEN) vs ASX 200 (BLACK)

Muirfield Growth Portfolio (YELLOW) vs ASX 200 (BLACK)

As the charts show, the fall in the Australian share market was far greater than the fall experienced via well-diversified portfolios. The Balanced portfolio fell around 14%, and our Growth portfolio fell 18.5% at the height of the pandemic. The good news is these falls were temporary and both portfolios have rebounded above the previous high-point in February 2020.

In the 12 months since the end of March 2020, the Balanced and Growth portfolios have risen 19% and 23% respectively. In comparison, the ASX200 was down almost 40% over the same period and has not yet recovered fully.

The charts and numbers seek to highlight the relative strength of Muirfield’s investment management process. It’s not about being the best performer, we aim to manage the risk of permanent capital loss by staying true in times of chaos. Diversification across asset classes and geographies is a reliable way to provide consistency in portfolio returns over long periods of time. There’ll always be better returns from year-to-year but rarely do you find reliability in those returns over the course of time.

This is why we do not attempt to time movements in-and-out of investment markets. Nor do we overreact to short-term market fluctuations.

1 in a 100-year event like the Coronavirus pandemic is not something that anyone can plan for. But you can also bet that another ‘Black Swan’ event will happen again in the future.

We’d like to think Muirfield clients can rest easy knowing your retirement nest egg is well-positioned to weather any storm.