V, U or L? Mar 6, 2020

V, U or L? Mar 6, 2020

Highlights (see enclosed pdf)

• The spread of the coronavirus outside of China has taken centerstage. If the ROW follows China’s template, the number of new cases could peak relatively soon.

• The VIX has likely peaked. But credit spreads may not have. Equity sectors highly exposured to the virus are the most immediate candidates for a credit event.

• US Treasuries have stood out as the best hedge asset by far, but gold has failed this time.

• Our baseline case is a U-shaped recovery with growth in US corporate earnings between -5% and +5% for 2020 as a whole.

• The CAP-M fund is rigorously data-driven. Our strategic and dynamic hedges have worked to control risk throughout this sudden crisis and made drastic portfolio changes unnecessary.