Michael Rudd, CFA | President, CEO and Portfolio Manager

While the US was on vacation for Thanksgiving, global stock markets have reacted negatively to news of a new coronavirus mutation. The new variant B.1.1.529 (labeled “Omicron” by the WHO) has 32 mutations on the spike protein and 15 other mutations that may make it more infectious and better able to evade immunity.

  • Figure 1 presents the prevalence of the variants from genome sequencing in South Africa. As you can see, the Parental lineage (grey) had been displaced with Beta and Delta (green and red), which have now been taken over by 529 (blue). This happened quickly. It took only 2 weeks to displace Beta and Delta, both of which took about 7 weeks to displace the original lineage. One positive is that it is easily identifiable with traditional PCR testing. For this reason, it has been found early and will ultimately be easier to track and hopefully manage with mitigation measures.
  • Figure 2 presents the impact on financial assets over the holiday, and you can see, cross-asset volatility is high. Risk assets tied close to economic growth like equities, oil and copper have been impacted negatively, while safe haven assets like fixed income and certain currency crosses have provided cover. This is how one would expect the market to react and while it is ultimately negative for equity holders in the short-term, it is nice to see that the market is reacting as expected (for a change).

“This means that” from the financial perspective, while the media headlines are alarming (they are designed to be that way to get you to watch), we are still at all-time highs in multiple asset classes. Some repricing would be normal and, in fact, should be expected. In health terms, this is worrying but we will not know if the mutation is more infectious and/or more lethal for several weeks. We have been here before with variants that were thought to be more dangerous and fell away (Gamma, Epsilon and Lambda, for example). Thus, we should remain clear eyed and measured in our analysis, as opposed to letting our emotions (fear and greed) take hold.

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*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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