Two years of Covid: Investors learn humility and adapt to an uncertain future

In March 2020, the stock market crashed 26% but recovered spectacularly by the end of the year, leading funds like GIC and BlackRock to rethink their investment strategies.
Two years of Covid: Investors learn humility and adapt to an uncertain future

Two years after the stock market crash that occurred in reaction to the start of the Covid-19 pandemic, institutional investors have readjusted their approach to investments as they prepare for more uncertainty.

Panic selling on March 9, 12, 16 and 23, 2020 led to a cumulative 26% drop in the Dow Jones Industrial Average.

After the crash, however, stock prices rose as companies adjusted to lockdowns and work-from-home arrangements, leading 2020 to end with the Morningstar US Market Index posting a 20.9% return. Record highs continued in 2021, with all sectors in the US posting gains and the Morning Star US Market Index hitting 25.78% returns, outperforming international stocks.

In contrast, emerging markets were a disappointment in 2021, having lost 2.5% in 2021 as Chinese stock suffered after a regulatory clampdown on the tech, education and property sectors.

Of course, this year, US equity markets are undergoing a correction, weighed down by interest rate jitters and the Ukrainian crisis. The S&P 500 fell 10% on February 24 from its record high on January 3.

The volatility over the past two years underscored the need for investors to relook at their strategies and just how prepared they were for unexpected events in the horizon.

“The Covid situation is actually the trigger for the whole research we conducted together with Blackrock,” Ding Li, senior vice president of economics and investment strategy at GIC, Singapore’s sovereign wealth fund, told AsianInvestor.

He was referring to the research GIC published together with BlackRock on exploring new scenario and simulation-based approaches in the place of traditional portfolio methodologies.

“[Covid triggered] both significant human health and supply chain issues, and also significant economic and social equity costs,” he said.

Uncertainty persists even as the world tries to move towards post-pandemic normalcy, he added. For instance, there has been uncertainty in policy direction as well “long-term impact on society and financial markets. The supply chain [issues of today] and inflation shock were also triggered from the Covid, reflecting the market,” he pointed out.

Put together, these uncertainties highlighted the need to take the lessons from Covid and apply it to investment strategies.

“As a long-term investor, we definitely need to keep our long-term investment objective in mind, it reinforce our focus on the long-term approach, organisation culture, relationships with partners, and also building a different investment capability.”


After the pandemic hit, GIC conducted an internal review process to look at how it could better construct the total portfolio. GIC does not reveal its assets under managements, but estimates range from $500 billion to $700 billion.

“Because we are in the lower for longer environment, we expect a low return from the beta strategies, [and] we used a different risk factor lens to build a robust and diversified beta portfolio,” Li shared.

“But that may not enough to achieve our investment objective from the total return perspective. That’s why we need to fully leverage our bottom-up investment capability and global partnerships with different organisations. So we can add a high-quality, skill-based alpha, which can help us to enhance the total return over the long run, especially with the uncertainty taken into account,” he said.

READ ALSO: How GIC incorporates uncertainty into portfolio construction

To be sure, GIC has always prepared for uncertainties, but it also needed to address the short-term volatility in markets.

“One of the philosophies for GIC is to prepare but not predict,” Grace Qiu, senior vice president of economics and investment strategy at GIC told AsianInvestor.

“Specifically regarding the shorter term volatility and uncertainty, we tried to build in alternative diversifiers to traditional diversifiers, such as bonds or cash. We also built some optionality in the portfolio by having sufficient liquidity and dry powder. All of these are very valuable lessons that proved to be very helpful during the pandemic,” she said.


Other institutional investors have also adjusted their strategies to address the ever-changing environment. For instance, Future Fund, the sovereign wealth fund of Australia, announced an updated investment strategy in response to the pandemic and the fund’s growth.

For Ben Powell, managing director and chief investment strategist for Asia Pacific at the BlackRock Investment Institute, one of the biggest lessons of Covid is “the importance of humility”.

“An event like Covid was, of course extremely impactful on all aspects of our life… It showed the importance of resilience, and revealed fragility, wherever that may have existed. Being appropriately humble about our ability to forecast the future is appropriate,” he said.

“And that's why when we think about uncertainty, it's something that we need to accept as a basic part of reality when we're constructing portfolios,” he added. “The question is exactly how do we incorporate uncertainty into our modelling and our portfolio construction, so as to help portfolios stay resilient, even in the face of hard or even impossible to predict scenarios.”

The pandemic also led investors to think about managing operations and the organisations’ culture, global chief investment officer of State Street Global Advisors, Lori Heinel, told AsianInvestor.

“One of the main goals is always to deliver exceptional performance, so spearheading a company of our size with as many eclectic investment capabilities, making sure that we have our eye on the pulse of markets, and that we're delivering the best value that we can for our clients. But the other one is really the returning call to office, [and working through] the new hybrid,” she said.

She added that one of the most challenging parts of adapting to the pandemic was learning how to work in a semi-permanent remote environment. “I've had to hire senior executives that I've never met in person, and onboard them and it's so easy to lose those connections and lose that culture,” she said

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