How Has Portfolio Management Changed During the Global Pandemic Crisis?
As the global pandemic crisis entered different parts of the world at varying times and intensities, the global investing scenario received an opportunity to diversify risks. Managing a portfolio became more complex than investing in the right stocks. Since there were significant variations across factors, active management and portfolio monitoring services came of the essence. They played a crucial role in allocating assets and discovering prices. Companies with ESG characteristics witnessed a lower decline rate during the crisis. All in all, the coronavirus pandemic has redefined economic conditions, social attitudes, investment norms, and business practices. Here, we highlight how portfolio management changed during the global pandemic.
- Risk Diversification
Investors, companies, and governments benefited from cross-border capital flows. Companies and governments continued accessing markets and raising funds at lucrative rates. Investor portfolios witnessed less exposure to sectoral and regional performance declines, as the crisis did not spread to all places at the same time and intensity. Companies with operations in multiple global locations showed more resilience to local economic disruptions. After the crisis, revenue growth, cost reduction, and risk diversification have become significant drivers for portfolio management.
- More Attention to Factor Management
The pandemic crisis caused sharp fluctuations in the financial markets. Cross-sectional factors ascended more sharply than the stock factors. Consequently, managing exposures to factors became more important than selecting the right stocks. For instance, avoiding air travel became more important than choosing the best airline. Portfolio monitoring services increased the usage of technology-enabled, accurate portfolio analysis at different aggregation levels.
- Opportunities for Active Management
Markets did not get the impact of the crisis uniformly. There were large performance variations across market segments, asset classes, industries, countries, and sectors. Sensitive factors witnessed sharp draw-downs while safe assets observed tiny drops only. Therefore, such a scenario received varied reactions from investors rather than causing a market panic. These declined gave opportunities to generate returns and add value through the active management of investment portfolios.
- Sustainable Investing Excelled
ESG investments have gained massive acceptance over the last few years. As investors realized the profound effects of ESG on long-term portfolios, the use of environmental, social and governance factors became more prominent in portfolio management and investment analysis. The global pandemic crisis confirmed that ESG factors have the potential to mitigate idiosyncratic and systemic risk. Companies with robust ESG characteristics saw smaller draw-downs compared to others.
- Indexed Investing Surpassed Others
Varying performances across different strategies and segments allowed investors to enhance returns and diversify risks. Many investors implemented this strategy through ETFs and other indexed investment vehicles. These investments facilitated price discovery, promoted efficiency, and enabled active management in fluctuating market conditions. Such assets maintained liquidity, transparency, and efficiency to affect investment decisions amidst the crisis.
The Covid-19 pandemic has accelerated de-globalization efforts by simplifying production and supply chains at the domestic level. While governments may put stricter regulations to control the cross-border flow of goods, people, capital, and services, investors may reduce their foreign portfolio allocations. Since the global pandemic crisis changed the way portfolio monitoring services manage portfolios for their clients, they help maintain prosperity and mitigate investors’ social, financial, and economic impact.