Page 36 - DIY Investor Magazine Issue 24

We believe it is likely to be some time before the travel sector returns to previous levels, if ever.
Top performer in AIC Global sector has been Manchester & London (MNL), which has benefitted from both key factors discussed so far. Its top seven stocks are a list of technology winners from the crisis - Amazon, Alphabet, Microsoft, Alibaba, Facebook, Tencent and Salesforce.
It also benefitted from having a short book in ‘old economy’ stocks such as oil and gas exposed stocks and low quality and low credit rated names which all paid off; the trust lost just 14% in the drawdown.
CHEAPER AND CHEAPER – THE UNDERPERFORMANCE OF VALUE CONTINUES
Another key reason behind relative performance is exposure to the value style; traditional value sectors of financials, energy and material have been particularly hard hit.
‘TRADITIONAL VALUE SECTORS OF FINANCIALS, ENERGY AND MATERIAL HAVE BEEN PARTICULARLY HARD HIT’
Banks suffer from lower interest rates hitting their margins and an inevitable spike in non-performing loans; we suggest they may take another step to being viewed as utilities deserving of greater state interference.
Energy and materials suffer from the shutdown in manufacturing and the coincidental price war between the Saudis and Russia; if the outcome of this crisis is less air travel, greater focus on domestic supply chains and a shift online, demand for energy and certain raw materials could become structurally lower.
In UK Equity Income the two top performers have been Finsbury Growth and Income (down 18%) and Troy Income & Growth (down 19.7%); sector average was a 29.8% loss and the worst - 55.7%.
These trusts hold high quality companies with defensive revenue streams and have a relatively low tilt to value stocks; worst performers were those with greater value exposure, the most geared and those with greater exposure to UK domestics. In Asia and emerging markets, the key has been to be overweight to China and underweight to India.
The same trends have been important – favouring high tech businesses and consumer and business services distributed online, and away from the value sectors of energy, materials and financials.
Being earlier into the pandemic than the West, drawdown in this period has been much better than in the developed world – albeit still in the mid-teens.
Creditable performers have been Witan Pacific and Schroder Asia Pacific in Asia; in emerging markets, Fundsmith Emerging Equities has done well thanks to its highly defensive portfolio and JPMorgan Emerging Markets outperformed, with low gearing and high exposure to internet and tech.
HOW DO WE GET OUT OF THIS PLACE?
We think this crisis will strengthen certain pre-existing trends , such as the shift of the economy online, keeping trade relations local, and regulatory interference in banks and major industry.
Technology will become more central to our lives and this will be felt in the stock market. However, much remains uncertain with different investment implications. We see two ways forward:
DIY Investor Magazine | Apr 2020 36