Brains boutique Disaster, Recession, and Money Market funds were created for events like the Coronavirus outbreak, market crashes, and recessions. Check them out on the Build Your Own portfolio page where you can select the exact funds you want to invest in. – Christopher Poillon, Brains Founder
The first cases of Coronavirus (or COVID-19) appeared in the Wuhan Province of China sometime around mid-December, and since then it has spread to thousands of people in many countries, with many confirmed deaths. Coronavirus is considered a global threat and world governments and health organizations are rapidly positioning themselves to stave off disaster. We here at Brains believe the global response will ultimately prove effective at curtailing worst-case outcomes, but we are cautious at the moment because there is still a lot of uncertainty surrounding the final outcome. Here are some of the risks posed by Coronavirus.
First, we would like to acknowledge and discuss the human toll of the disease. As it stands, many have already died and many more are at substantial risk. For comparison, let’s look at the West African Ebola epidemic, which started in 2013. There are two key differences between the diseases. First, the good news is that the currently estimated fatality rate for Coronavirus is around 2%, which is substantially lower than the Ebola virus at 40%. However, the bad news is that Coronavirus is much more contagious, and has already infected three-times as many people over three months than Ebola infected over about three years. This is the basis for widespread concern by global leaders. Even at a 2% fatality rate, at current rates of transmission, millions of lives are at risk around the globe.
How can this risk to human life be mitigated? Governments are already taking massive steps around the world by testing travelers and implementing quarantines to stem the spread of COVID-19. One cause for optimism is the amazingly fast genetic sequencing of the disease that health workers completed in January. As a result, drug maker Moderna has already shipped a candidate vaccine to government researchers and is preparing to undergo clinical trials in April. This does not mean that COVID-19 will go down easily, as even with an effective vaccine it may be difficult to produce and mobilize sufficient supply. A second cause for optimism is that it is likely that the currently estimated fatality rate is overstated. This is because it is much easier to count deaths from the disease than all cases from the disease, especially in the early stages when testing is not administered systematically and people may or may not show significant symptoms. However, we are cautious about speculating about the true fatality rate, as quality data is simply lacking.
The most immediate economic effect of COVID-19 is the negative shock to economic activity. Due to widespread fears of contagion in many parts of the world, especially China, South Korea, and Italy, schools and businesses are shutting down and both trade and manufacturing are grinding to a halt. This will hit many firms at their bottom line, especially those in the travel and restaurants and hospitality industries. This is the major reason for the large drop in financial markets we observed last week. Some firms, especially those in our Disaster and Recession Funds, should be insulated from this downside. This is because these Boutique Funds are designed to withstand negative shocks by investing in companies that can thrive in the current market. Such companies include major healthcare providers, providers of food, and other consumer necessities.
Ultimately, it is impossible to predict the exact impact COVID-19 will have. While we are taking a cautious approach, since we perceive the outbreak to pose a serious threat to the health of many and the global economy, we also find that there is good reason to believe that COVID-19 will ultimately be contained and not result in a global economic depression. We are, however, closely monitoring the situation and are prepared to revise our forecast given any new information, and we are here to help guide you through this tumultuous time.