How to Think Through Market and Fundamental Uncertainty

Brandon Snow's picture

We have had unprecedented moves in many markets over the last few weeks, and it’s important to remember unprecedented things happen in the market over and over again. While this situation is unique, the market behavior is not unusual.

While we don’t have a lot of certainty about what will happen from here, we wanted to share our framework for thinking about these situations. It has helped us react since the very beginning at Cambridge,  especially over the last month, and think this will help guide our decision-making from here. While we can’t change what has happened, we can take in all available information and make the best decisions we can today in this period of uncertainty.

As investors we have two points to consider: (1) What the market is thinking/reflecting and (2) What is happening to fundamentals. In both cases, there are things we know and things we don’t. Here is a snapshot of the matrix we have been using to think through this with some points (not an exhaustive list):

  Market Reality
What we know
  • Treasury market is very illiquid; bid-ask spread has blown out
  • Credit is under stress (OPEC + other)
  • Equity players have derisked
  • We are seeing panic in markets
  • Travel demand has collapsed
  • Energy demand has collapsed, supply is ramping
  • Companies are drawing on credit lines due to economic uncertainty
  • COVID-19 cases likely continue to climb in North America, following the patterns we have seen in Asia and Europe
  • China has been recovering towards normal
What we don’t know
  • How much of the treasury market malfunction is technical (poor positioning by levered funds) vs. fundamental
  • How long dislocations will last
  • What can central banks do to stop the panic
  • What they will do
  • The ultimate response by companies and governments
  • The ultimate economic impact
  • The ultimate infection and deaths caused by COVID-19
  • The ultimate level of hysteria around the virus risks
  • How long will Saudi Arabia and Russia continue to oversupply the oil market
  • What will the bond market dislocations do to the availability of funding for companies
  • Could this burst the private equity bubble

As you can see, we have had significant derisking in financial markets and alarming malfunctioning of liquid and safe securities.  From the ‘reality’ perspective, there still remains significant uncertainty about the impact of the virus (and credit stress it is contributing to) on economic activity, although the rebound we are seeing in China is encouraging.

Using this framework, we had reduced cyclical/credit exposure ahead of the recent decline in the market leaving  Cambridge Canadian Equity Fund with 15% cash entering this week (week of March 9).  The source of funds were commodities, cyclicals  and credit exposed firms.  Today, with equity markets down 25-30% from their highs, we are starting to see some attractive absolute valuations  and  are beginning to deploy capital. However, it is important to remain mindful of the risks surrounding the credit and treasury markets so the focus is on high quality business models with strong balance sheets, including some business at the epicenter of these shocks.  After today, we will still have enough dry powder to deploy as the situation continues to evolve.

There remains tremendous uncertainty, but we do feel comfortable that with the appropriate framework for decision making we will navigate well from here. We also want to offer the Cambridge blog platform to answer any questions clients may have about the current situation. Please submit your questions in the comment section of this blog and a member of the Cambridge team will respond.

Before we conclude, we want to repeat what we said at the beginning of this blog: we are seeing a lot of unprecedented things happening in the market and the world and that is not unusual.  We must assess the situation as it evolves and make the best decisions we possibly can.

Source: Cambridge Global Asset Management

Thank you for your continued support.

Brandon Snow, Principal and Chief Investment Officer



Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or an offer or a solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication.  Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. 

This commentary is published by CI Investments Inc. The contents of this piece are intended for informational purposes only and not to be used or construed as an endorsement or recommendation of any entity or security discussed.

The author and/or a member of their immediate family may hold specific holdings/securities discussed in this document. Any opinion or information provided are solely those of the author and does not constitute investment advice or an endorsement or recommendation of any entity or security discussed or provided by CI Investments Inc.

Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Investments Inc. has taken reasonable steps to ensure their accuracy.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither CI Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Cambridge Global Asset Management is a division of CI Investments Inc. Certain funds associated with Cambridge Global Asset Management are sub-advised by CI Global Investments Inc., a firm registered with the U.S. Securities and Exchange Commission and an affiliate of CI Investments Inc.

CI Investments® and the CI Investments design are registered trademarks of CI Investments Inc. © CI Investments Inc. “Trusted Partner in Wealth™” is a trademark of CI Investments Inc.

© CI Investments Inc. 2020.  All rights reserved. 


Published March 17, 2020.

Add new comment

We welcome your comments and questions for the Cambridge team and will respond as soon as possible. Please note that all comments are reviewed for their relevance to the topics discussed in the blog, and that comments may be edited.