Stock markets, society and economies have been rocked by the Covid crisis, so it is interesting to examine what has been resilient is these near science fiction times.
Most diversified funds, will have some assets that tend to do well when the appetite for investment turns to safety instead of opportunity, using assets like government bonds, gold and other precious metals to balance their equities and manage their downside risk. It is unsurprising then, that when looking at the sectors and funds that have been resilient during this crisis, it is the Bond and Precious Metals funds that dominate with returns between 15% and 30%.
Of greater interest are the equity led funds which have shone and the elements which characterise them. According to FT Analytics data on three thousand funds, between 1 January 2020 and 30 April all but ten of the top fifty funds were invested in Gilts/Bonds and precious metals and of those ten, six were from Edinburgh investment house, Baillie Gifford. A truly extraordinary figure. The other strong performers were US or technology based.
Of the investment sectors that are in positive territory, the top five are Software and Computer Services, General Retailers, Pharmaceuticals and Biotechnology, Technology and Heath care.
Can Covid Save the Planet?
A lot has changed since the Extinction Rebellion shutdown of parts of London, but has sentiment for their cause also changed and will this affect investors?
Our March Newsletter, mostly written before the virus began to spread across the globe, discussed how we saw the 2020s being the decade where social and environmental concerns would drive investment decisions, as more and more legislation, nudged fund managers and businesses in this direction. Like most changes we expected this to be gradual but it is possible the global lock down and the growing threat of pandemics, will have changed attitudes and will accelerate many of the developments and innovations needed to address social and climate pressures.
Our view is that our portfolios need to be as diversified as possible, but using funds with forward looking strategies, that recognise the rapid changes taking place in society and economies. Some of the changes in thinking, that we believe are coming, are already embedded in, what are now called, ESG (Environmental, Social and Governance) funds, which have been very resilient during this crisis. How assets are allocated within a fund might be traditionally listed as percentages in for example, Financials, Industrials, Technology, Consumer Services etc.
Compare this to the the way Liontrust describes the asset allocation in their sustainable funds. They list allocations to themes including, Improving the efficiency of energy use, Enabling innovation in health care, Connecting people, Providing education, Building better cities. A completely new way of thinking about investing capital.
The resilience of ESG type funds, in this crisis, is partially explained by their avoidance of areas such as oil and traditional banks, which are a major component of the FTSE100 and which has been very badly hit. However, these funds, as with the Baillie Gifford funds which have performed well, are ideas led.
Their resilience appears to be attributed to their forward looking holdings. The assets or companies needed in these challenging times, are also needed for the challenges of the future. Our newsletter looked at some of these future challenges and many clients have asked for a copy to forward to friends or family so it is attached to this update.
In the news
PPE is very much in the news at present and it is interesting to note that rubber gloves were invented in 1894 at John Hopkins University, so much in the news at present for its focus on epidemiology. Baillie Gifford's huge flagship fund, Scottish Mortgage, was founded in 1909 to help fund the development of rubber plantations in Malaysia, which is now the leading exporter of rubber gloves worldwide.
So as the government begins to map a very uncertain route out of lock down we expect, despite the recent largely upward trend, that there will be increasing volatility as the future of the global economy begins to emerge. We expect different areas of the globe to perform differently but we also expect innovative and cash rich businesses to be at the forefront.
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