Yoshikami: Can Your Portfolio Handle a Case of the Flu?

Investors have a new variable that could potentially impact investment outcomes -- the flu. Your portfolio strategy will be impacted depending on how serious the spread of swine flu is and how dramatic the resulting panic turns out to be.

It’s anyone’s guess how this will play out. And in the the investment world you must adapt and move quickly to best position portfolios for changing environments. And this environment is changing.

If the flu impact is severe and the spread of the illness is not easily contained, industries affected will include tourism, transportation and commodities.

Hotel companies like InterContinental will be impacted as populations stay closer to home to avoid potential contact with the virus. Cruise operators like Carnival could very well see mass cancellations. Economic growth could be seriously impacted which would lessen the demand for oil and industrial metals. On the other hand, health care companies GlaxoSmithKline and Sanofi Aventis might benefit from the increased demand for antibiotics and related medicines. Biotech companies like Amgen will likely gain favor.

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However, if the outbreak is contained, the economic impact will likely be minor. If that’s the case, there may be unreasonable sell-offs in industries that are perceived to be at risk if a more widespread outbreak had occurred.

This was the lesson from SARS. Asia’s economy essentially shut down and then roared back to life when the disease was contained. Panic often leads to major sell-offs and investors should be aware of the disconnection between reality and fear. And be ready to take action.

For example, look at the fluctuations in Asia airline stocks like Cathay Pacific and China Airlines in the last week. Mexico is a LONG way from Hong Kong and Shanghai but these stocks have fluctuated wildly.

One cannot understate the potential for economic devastation if a pandemic event occurs. There is a risk of this outcome though it’s too early to say if that will play out. Monitor headlines accordingly. There will be a moment when the facts will be clearer. And then step back and see what opportunities exist.



Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). Michael oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.