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What would Winston Churchill say today?

It would be interesting to hear Churchill’s thoughts on the current crisis. Sadly, we will never know, but we do know he didn’t think much of currency traders:
“There is no sphere of human thought in which it is easier for a man to show superficial cleverness and the appearance of superior wisdom than in discussing questions of currency and exchange.”

With those stinging words ringing in my ears, here are my thoughts on currencies in the current environment.

The euro faces existential threat

I think the euro will face an existential moment in the coming weeks. That can be avoided if the eurozone countries move to risk-sharing and towards a full fiscal transfer mechanism. Since adopting the single currency, Italy has hugely underperformed (30% below the average level of GDP of other member states, as we enter this crisis) and has suffered high…



John Parsons
Currency Portfolio Manager

During this period of unprecedented upheaval and disruption, some companies will rise to the challenge of the moment, while others will not. In many cases, their most enduring actions — and the ones that help them survive — will include ESG decisions as well as financial ones. How are companies ensuring employees’ safety? What benefits are they providing? How are they treating customers and communities? Are they evaluating the resilience of their supply chains?

During our engagement calls with executives and boards, we are asking questions like these to understand how each company is responding to the COVID-19 crisis and considering all its stakeholders. I’ve included a few of our investors’ insights here.

Carolina San Martin, CFA
Director, ESG Research

On a recent energy-company call, it was clear that the board and management have increased their focus on employees in light of the COVID-19 crisis. While they didn’t rule out…



Wendy Cromwell
Wendy Cromwell
Vice Chair, Director of Sustainable Investment, and Portfolio Manager

While obviously a challenging market environment, we believe that high-yield bond and bank-loan spreads, in the 97th and 98th percentiles, respectively (as of this writing), could more than compensate investors for forward-looking potential credit losses.1

  • In the case of bank loans, an average market price of around 782 seems to imply that investors are expecting more than 50% of the market to default. However, the worst five-year cumulative default rate for loans historically has been 25.3%.3
  • Additionally, investing in high yield at spreads over 1,000 basis points (bps) and then staying invested for three or more years has historically produced annualized total returns of at least 14%.4
  • As a result, despite today’s challenges, we believe there may be…


Key takeaways

  • The ECB has shed most of the remaining constraints on purchases. It will be able to support an aggressive expansion of sovereign issuance this year.
  • The eurozone’s fiscal response lags behind, but will catch up over the coming weeks as growth deteriorates.
  • Eurozone political leaders will likely eventually endorse using the European Stability Mechanism (ESM), but will need to go further.

ECB’s pandemic emergency measures

The ECB has published details of its €750 billion Pandemic Emergency Purchase Programme (PEPP).

When the decision was made last week, the ECB stressed the flexibility of its implementation. This decision is the practical implementation of that:

  • Greece is included in the programme.
  • The 33% limit on the share of eurozone members’ bonds that the ECB will hold under its existing programmes does not apply to the PEPP.
  • The ECB can buy across the yield curve, from very short maturities (down to 70 days) to very long ones.
  • The ECB has accepted pari-passu treatment in the event of a sovereign-debt restructuring.

Few constraints remain

The last three points were news, I believe, and demonstrate that the ECB will disregard past constraints in order to respond to the pandemic. The remaining constraint is that the purchase amounts are guided by the ECB’s capital key, which…



Jens Larsen headshot
Jens Larsen
Macro Strategist

At times like this, it never hurts to dust off basic, time-tested principles — like the importance of staying invested through thick and thin — that even sophisticated investors may lose sight of when fear takes hold. While we don’t yet know how long the COVID-19 crisis will last, the extent of its economic impact, or when markets will bounce back, here’s what we do know.

  • Investor returns would have suffered greatly from missing the market’s best days. The MSCI World Index1 returned 7.52% annualized for the 15 years ended December 2019, but investors who missed the 10 best days from that period would have earned less than half…


Matthew Bullock
Investment Director
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