To the Yieldstreet Community,
As you know, it has been a wild month in the market. Our immediate concern is for the health of your families and our employees, and we hope that everyone remains safe and unaffected by Coronavirus (COVID-19).
Yieldstreet is a community that was founded and thrives on a shared belief that we should all have access to investment opportunities that generate passive income and create wealth. Therefore, we think it is important to update you on our view of the market and address how we expect our portfolio to react in the short, medium, and long term.
The past month has been an unprecedented time for the world. As the coronavirus rages and social distancing measures are enforced, economic activity has come to a grinding halt, with the Fed responding by launching more extreme QE measures than during the 2008 financial crisis. In the financial markets, the S&P fell by 34% since its all-time highs in mid-February, tripping 4 market-wide circuit breakers along the way.
Investors have been concerned about the impact of Coronavirus on the global economy and hope to understand how that translates to each of our asset classes. One major concern is that a pandemic in and beyond China, which accounts for 16%* of today’s GDP, could disrupt key components of the global economy and set off a chain reaction, leading to the next major recession. Historically, the overall market has been resilient enough to weather the short-term impact of epidemics. Examining 12 major epidemics over the past 40 years, including 2003 SARS and 2009 H1N1, we have seen that the 6-month change of the S&P 500 following the start of the epidemic was positive in 11 out of the 12 instances, with an average price return of 8.8%*. Nonetheless, it is possible that Coronavirus could be a black swan medical crisis different from the ones we have seen before.
At Yieldstreet, we take comfort in our portfolio’s resilience because our investment strategy has always been focused on asset-backed opportunities which typically provide low correlation to broader market events and are supported by collateral. That said, we believe that each asset class may have a different reaction depending on how widespread Coronavirus becomes and how markets fare.
We are actively monitoring the portfolio and placing strategies in different buckets of risk: hospitality (travel-related), retail, multi-family, office, and construction. We believe that the greatest impact will be on hospitality and retail assets, which comprise a small percentage of our overall portfolio. So far, we have no reports of asset impairment but will continue to watch this and update you accordingly.
From a macro perspective, global transportation and logistics markets have been going through a challenging few months, with declines in growth and performance. In shipping, we have observed that the Baltic Dry Index (“BDIY”), the primary global shipping index, is at its lowest level since 2016*, and is down ~37% since the beginning of the year. This was initially fueled by trade wars, then by the seasonally low period leading up to the Chinese new year, followed immediately by the Coronavirus outbreak. In most cases, our borrowers have been making necessary adjustments and have made timely payments, while others will require more attention. Recently, we have seen in a few instances that our borrowers will need our assistance to work through these challenges. We are aggressively working to fully understand the situation and to devise solutions that are designed for mutual success. We will follow up on this topic, in no later than 90 days’ time. However, it is important to state that we are not concerned about longer-term impact on our investments as a result of the virus. Markets rebound, we have collateral, strong borrowers, and experienced investors. As a team, we are fully equipped to manage this situation.
We do not see any impact on the legal finance market. For comparison, in 2008-10 at the worst of the financial crisis we saw budget cuts at the federal, state, and local level which reduced staffing levels in courthouses and slowed resolution timing, but not values. We have seen no indication of this as yet. Accordingly, presently, we are not concerned about the impact on this asset class.
The most significant risk that COVID-19 presents to the art market is the expected short-term price impact going into the Spring auction season. In early March, there were several successful auctions and two major art fairs in New York, which, despite a dip in attendance due to early COVID-19 concerns, saw a steady stream of sales. Historically, in times of market uncertainty and volatility, artworks by top artists have largely held their values. While prices temporarily softened, market conditions and valuations strengthened in due course. As such, Athena is not overly concerned about COVID-19’s long-lasting impact on art prices, but we must be realistic and anticipate that some short-term stress may arise.
Yieldstreet Prism Fund
Our recently launched Prism fund is a diversified portfolio of investments across asset classes, designed to generate passive income on a longer time horizon (48 months). This gives investors access to a product which we believe will experience little to no adverse impact from Coronavirus considering the duration of the fund. We encourage investors to take advantage of the Yieldstreet Prism Fund and gain exposure to potentially attractive opportunities that are borne out of this type of market volatility.
Over the last five years, Yieldstreet has enjoyed what we consider to be tremendous success because of the faith you put in us knowing our commitment to always operate with an investor-first mindset. While we are excited about our news coverage, major announcements and partnerships, our focus has always been and will continue to be on the absolute performance of our investments. Especially in times of uncertainty, our focus on performance increases. While our company is young, our investment teams are mature, having weathered many adverse market events in the past. We know from experience that market moves like this can present buying opportunities for smart investors, and we are actively seeking new ways to create value for you. We appreciate your support and confidence as markets normalize.
The Yieldstreet Team
Epidemics and Stock Market Performance Since 1980 First Trust Portfolios L.P.
IMF’s World’s Economic Outlook Database October 2019
National Bureau of Statistics of China; Bloomberg
The Art Newspaper, New York’s Armory Show sees solid sales despite coronavirus risk
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
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