The coronavirus pandemic has left the investment world topsy-turvy. Some businesses that might have thrived in more normal times are struggling while those that were seen as staid and boring are suddenly viewed as safe bets.
For the fund management industry – overseers of our long-term investments – this has required them to adjust their portfolios.
Individual investors can learn from fund manager dealings, so here’s a rundown of some of the big moves they’ve made in recent months – and why.
Money madness: The coronavirus pandemic has left the investment world topsy-turvy
WHAT MANAGERS ARE BUYING…
Alistair McKinnon, manager of Scottish Investment Trust, is among a number of portfolio managers to have bought gold mining shares and reaped the benefits.
He says: ‘Two recent additions to our gold investments, Gold Fields and AngloGold Ashanti, provided some of the trust’s best returns in April. Both stocks rose by around 50 per cent.’
John Chatfeild Roberts, co-manager of investment fund Jupiter Merlin Income, also bought into gold mining companies after widespread cuts to UK dividends in April. He says: ‘The cost of extracting gold has been falling as it’s an energy intensive business. We bought gold shares on March 17 and, so far, they are up some 40 per cent.’
Over the past three months, Scottish Investment Trust has generated a return of 5.3 per cent. Over the past year and five years, it has delivered returns of minus 7 per cent and plus 29 per cent. The respective figures for Jupiter Merlin Income are gains of 4.4 per cent, 1.3 per cent and 22 per cent.
While some managers have sold off stakes in retailers, others have taken advantage of uncertainty to pick up stocks that they hope will recover. Hugh Sergeant, manager of investment fund R&M Recovery, has bought stakes in WHSmith, Asos and Next.
Sergeant describes them as ‘higher quality business franchises, but ones that were being hit by the induced coma of lockdown’.
Terry Smith, manager of Fundsmith Equity, bought into both Starbucks and sports retailer Nike at low valuations in March – although the holdings were only revealed in the firm’s May fund factsheet. Over the past three months, R&M Recovery has recorded a gain of 1.5 per cent.
Over the past year, it has lost 15 per cent but the fund has generated a five-year return of 6.8 per cent. The respective figures for Fundsmith Equity are all positive – 14 per cent, 9.4 per cent and 138 per cent respectively.
Several fund managers have picked up insurance stocks in recent weeks. Alex Wright, manager of investment trust Fidelity Special Values, has bought a stake in Legal & General which he believes should ‘weather this storm better than generally expected’. Meanwhile, Niall Gallagher at GAM Star Continental European Equity bought shares in Hiscox which he had been eyeing for some time, but which had previously looked too expensive.
A brave move given the threat of legal action over its refusal to meet claims from business owners arising from the disruption caused by the coronavirus crisis.
Fidelity’s Wright has bought shares in Pearson, due to its online learning arm which accounts for 20 per cent of the company’s revenues.
Wright says: ‘The business is expected to recover quickly when social distancing is relaxed and usually performs well in a recession – not a common feature in the stock market.’
Fidelity Special Values has performed poorly. Over the past three months, it has recorded losses of 9.3 per cent.
Over the past one and five years, losses are 25 per cent and returns of 5.3 per cent.
AND WHAT THEY ARE SELLING
Struggling retail and leisure
While some fund managers saw opportunities as retail stocks fell, others believe it will take too long for some shops to recover.
‘We sold positions in M&S, Macy’s and Gap as we thought that without customers even good recovery plans would be insufficient,’ says McKinnon at Scottish Investment Trust.
Torcail Stewart, manager of fund Baillie Gifford Strategic Bond, sold shares in Pure Gym on the basis that gym usage will remain subdued as the country emerges from lockdown.
Fully valued cleaning companies
Fundsmith’s Terry Smith, who is renowned for holding on to companies long term, made the unusual decision to sell cleaning company Clorox after holding it for only four months.
Clorox is among the best-performing stocks in the S&P500 since the turn of the year, thanks to demand for its bleach.
However, Smith still holds rival cleaning product group Reckitt Benckiser.
Smith says that Clorox had performed strongly and that the crisis ‘has produced other investment opportunities we wish to take advantage of’.
Fundsmith Equity only ever holds a small number of companies – around 30.
ONE FUND GURU HAS MADE NO CHANGES
While most investment managers have changed their portfolios as stocks have fluctuated during the coronavirus pandemic, one of the UK’s remaining ‘star managers’ wrote to his investors – explaining that he was making no changes.
Nick Train, of investment house Lindsell Train, did not buy or sell investments in any of his four funds – describing this decision as ‘significant’ when he wrote to investors at the end of April.
No change of view: Lindsell’s Nick Train
He explained: ‘There are two reasons for it. First, we hope Lindsell Train’s investment principles and process mean we were already owning the right sort of company for a crisis. We have always placed a high value on the ‘survivability’ of the companies we invest in.
Next, in all humility: ‘We do not know’. We are not epidemiologists and therefore have no insight into the duration or severity of the epidemic.’
In three months, Lindsell Train’s Global Equity fund is up 15 per cent, while it is up 0.7 per cent over a year and 118 per cent over five years.
The £7.4billion fund is one of the country’s biggest and has key stakes in some of the world’s largest listed companies – such as drinks giant Diageo and payment company PayPal.