Geopolitics and The Market
This week, we saw something that we have not seen since World War 2. A European country moving just under 200,000 military troops into another European nation and attacking its capital. This is a very serious event and undoubtedly will lead to significant human tragedy, the full extent of which will most likely take years to play out. Furthermore, the reaction of other counties may evolve somewhat over the coming months, which remains another unknown.
As money managers, our role is not to figure our what or who is right or wrong, but instead to focus on what to do with our portfolios and funds. Long time readers of our Investment Outlook will know that, at times like these, we believe that we need to look past the emotion, the headlines and the fear and act rationally. Figure 2 presents how “markets” reacted this past week and it is pretty obvious that there was initially fear and uncertainty when the news broke.
Figure 1 is a reprint of work that we did as the COVID pandemic broke in early 2020. It shows that the long-run implications of military action on developed equity markets is, in general, somewhat limited. Please look here for the full series of these reports on our website.
This means that” while the current situation is alarming from a humanitarian point of view, in reality, an isolated Russia will have limited financial impact on the rest of the world. The Russian commodities trade with Europe is large relatively speaking. The natural gas supply is difficult to substitute, but crude and wheat can be supplanted by Canada, the US and the middle east (although prices would most likely be higher). As long as other countries remain outside of the conflict, most economies will feel limited impact. Consequently, we took the drawdown as an opportunity to add and initiate positions (please see Trades section) where prices crossed below our fundamental business valuation.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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