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Market Perspectives

Perspectives Amid Coronavirus Uncertainty

Wallace R. Weitz, CFA

Co-Chief Investment Officer, Portfolio Manager

Bradley P. Hinton, CFA

Co-Chief Investment Officer, Portfolio Manager

 

In recent weeks, COVID-19, otherwise known as the coronavirus, has dominated headlines, and the outbreak seems to get scarier every day. As new cases of the disease are confirmed outside of Asia, including a handful of isolated cases in the U.S., markets have experienced a significant slump. With so much uncertainty around how long the outbreak will last and how far it will spread, investors are understandably concerned.

Above all else, our hearts go out to those who have been affected by this devastating outbreak – both here in the U.S. as well as those overseas. We pray that those afflicted have a quick recovery, and in our home city of Omaha, we’re proud to be part of a community that’s at the forefront of searching for a cure.

While it’s important not to dismiss the terrible consequences of the coronavirus, it’s also important not to overreact to news events. Historically, events that have caused selloffs based on fear and uncertainty have soon faded into the background. As the news continues to unfold, we believe the best course of action for long-term investors is to remain calm and stay invested.

How Well-Positioned is Weitz to Weather the Market Slump?

So far, the coronavirus has sparked concerns about slower economic growth particularly in China, emerging markets, commodities, and in the transportation and tourism industries. Our allocation to specific travel-related stocks is zero to limited, depending on the portfolio. We do hold small positions in a few stocks that may be affected by direct supply disruption and will continue to monitor these investments relative to our long-term expectations.

On the other hand, our allocation to cable and broadband companies is relatively high compared to the broad markets. These types of companies are arguably less directly impacted by the current situation. In addition, over the past couple of years, we have been moving portfolios to higher-quality companies with strong balance sheets, capable management teams and outstanding long-term prospects. We base our investments on companies’ intrinsic value, looking out at least five years, and unlike the ups and downs in the market, intrinsic value isn’t determined by news headlines.

It should go without saying that we’re not immune from a wide-ranging market selloff. But overall, we feel that our portfolios are well-positioned for a downturn, whether it lasts for just a few days or stretches into something longer.

Do We See a Buying Opportunity?

We are looking for opportunities to reshape our funds wherever it makes sense in a way that’s consistent with what we’ve been doing for quite some time. However, we are not particularly excited about new opportunities just yet. While stocks are down sharply this week, the market adjustment has not been enough to spur much activity from us. In other words, we will continue to have steady hands at the wheel through these recent market twists and turns.

Putting Things into Perspective

The coronavirus is, of course, not the first health scare that has triggered a market selloff. Similar epidemics in the past, like the Severe Acute Respiratory Syndrome (SARS) in 2003 and the Middle East Respiratory Syndrome (MERS) in 2012, both rattled Wall Street and frightened investors.

According to the World Economic Forum, the coronavirus has been spreading much more quickly than either SARS or MERS. However, to date, the coronavirus has had a much lower fatality rate than those two diseases. Current statistics indicate the coronavirus has a fatality rate of less than 3%, and, like the common flu, the disease is disproportionately dangerous to the very old, the very young and those who are already sick. Otherwise healthy adults who contract the coronavirus have a high rate of survival.

For comparison, the SARS virus killed about 10% of those who contracted the disease while the MERS outbreak had a fatality rate of about 35%. In neither case did the markets experience a long-term loss.

As an additional point of comparison (and without diminishing the seriousness of the disease), according to Johns Hopkins Medicine, the coronavirus has caused about 2,700 reported deaths worldwide and zero deaths in the U.S. Depending on the year, the common flu is often blamed for upwards of 600,000 deaths worldwide and anywhere from 12,000 to 61,000 annually in the U.S.

What’s Next?

Ultimately, the severity of the coronavirus will dictate the market impact. And just because past epidemics have had minimal long-term effects, there’s no guarantee that the markets will be able to shrug off the coronavirus completely.

For the long-term investor, we suggest not making investment decisions based on current headlines. There will always be volatility in the markets, and investors who are willing to stay invested in our high-conviction, actively managed funds are in a strong position to find long-term success.

The opinions expressed are those of Weitz Investment Management and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through the date of publication, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor's specific objectives, financial needs, risk tolerance and time horizon.

All investments are subject to market risk, including the possible loss of principal. Holdings are subject to change and may not be representative of the Fund's current or future investments.


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