As we witnessed in our latest webinar (click here for the Q&A), investors are struggling to understand everything given the tsunami of news. Markets have begun to claw back losses in some areas, but there may well be more bad news ahead, before we see a sustained trend in positive headlines. So what’s next?
Although the measures taken by central banks and governments are crucial to support economic growth, they are unlikely to result in an immediate uptick. Because of this, people are still prone to panic. The panic in supermarkets somehow echoes the panic in financial markets. But while the focus when grocery stockpiling has been on goods with long-term shelf lives, that mind-set has not translated into those of many an investor. Instead, the mantra has been sell, sell, sell, with even ‘safe haven’ investments coming under pressure. Robust companies that will withstand the coronavirus and its ramifications are being sold as quickly as any ‘lame ducks’. This indiscriminate selling creates opportunity.
As the investment managers of your portfolio, we have made some high-level changes to our strategy: decreasing emerging market debt; and adding marginally to our equity and alternative investment allocations. We have also made some moves within the asset classes.
We would like to take this opportunity to bring your portfolio to life by illustrating some stock-specific calls, and we hope you will find this both interesting and reassuring. Please note that these are examples shared for your information, and are not meant to be stock recommendations.
Within global equities, two areas of focus have been (1) great companies which are now trading at much more favourable valuations and (2) a ‘COVID’ list of companies ‒ good companies that are perceived as being exposed to the virus, but could provide for attractive buying opportunities in the weeks ahead as pandemic curves begin to flatten and decline. Recent purchases include Alibaba, which could benefit from any potential uptick in the Chinese economy as life starts to revert to ‘normal’. In addition, recent market volatility has allowed positions to be taken at constructive levels in Abbot Laboratories (a business linked to lifestyle diseases as well as a provider of diagnostics), Mastercard, and another medical technology company, Beckton Dickenson.
In emerging markets, exposure to China was reduced back in January via the sale of two companies, a Chinese travel agency and a casino operator, which were likely to be hit fast and hard by the coronavirus pandemic. Attention then turned to companies that might benefit from the pandemic, which could be acquired at opportunistic prices after the first sharp sell-off. An example of this is Yonghui Superstores, which has a strong position in fresh produce that is sold through local stores in China ‒ shops that have seen sales improve as people have not wanted to travel to out-of-town locations. Another stock added to the portfolio is Lepu Medical, which does medical testing and offers a test for COVID-19. Finally, following the most recent sharp moves in markets, the same casino stock was repurchased at a significantly lower price than its sale price back in January.
Our alternative investments have generally suffered lower losses than global equity markets and have recovered faster. Next week, we will focus on the investment trusts that comprise these investments and provide you with the reasons why we believe they are perfectly positioned to weather this storm. As a taster, one investment, Hipgnosis, is now back up to pre-COVID-19 prices. This is an investment trust we included in portfolios last year which owns the writers’ rights to thousands of well-known songs. It receives regular cash royalties whenever the songs are downloaded, played or performed anywhere across the world ‒ an obvious beneficiary of many people spending much more time at home.
Let me leave you with a line from Rudyard Kipling’s poem, If―, which was first published in 1910, just a few years before the 1918 Spanish Flu epidemic: “If you can keep your head when all about you are losing theirs”. We acknowledge this is by no means easy during these volatile times, but it is nonetheless the approach Nedbank Private Wealth is taking. We have a robust, disciplined investment approach which is designed to meet our clients’ long term financial objectives, and we are here to help you “hold on” and guide you through this evolving situation with a wealth of experience across our team of analysts, investment specialists and advisers. You can rest assured that your portfolio remains anchored by the solid principles of diversification, liquidity, and a rigorous monitoring and valuation process.
Clients of Nedbank Private Wealth can get in touch with their private bankers or relationship managers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000.
If you would like to find out more about how we can help you manage your investments, please also contact us on number above or email us.
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Rebecca joined Nedbank Private Wealth in May 2004 having moved to the Isle of Man from Barcelona to pursue a course in Business Studies with the Isle of Man Business School. Rebecca was appointed to the role of investment counsellor in March 2019 to focus exclusively on the company’s discretionary investment management services. She works closely with our teams of private bankers to provide support in advising our clients with integrity, and to give additional technical investment expertise where more complex portfolio requirements exist. Rebecca is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.