It is now 2 months since the coronavirus caused panic throughout investment markets sending stocks tumbling by as much as 35% across the world. Naturally our clients were concerned and Save & Invest, drawing on our decades of experience and, some very severe market collapses, advised our clients to remain invested.
In the past few weeks of lock down, many stock markets have had double digit days, both positive and negative, and from the depths of 23 March, we now have witnessed a significant bounce. Many stock markets have gone up by around 20% since March 23 and our own FTSE 100 has seen a similar bounce, despite being over weighted with oil stocks.
Whilst it is too early to say that March 23 was the low point in this crisis, there is increasing hope that the measures taken in both the health and financial arenas, can be effective.
The Save & Invest Investment Committee is focusing on the areas that could thrive in the post Covid world. Throughout history, crises have created change. Whilst before the covid crisis, we were looking at the areas that would drive the world in this new decade, this crisis, we believe, will accelerate these changes.
While we have watched world stock markets fall, there is an Edinburgh based investment trust, widely held in Save & Invest portfolios, which has actually increased in value. Many of Baillie Gifford’s Scottish Mortgage Investment Trust’s underlying holdings have thrived during the crisis. Its top 10 holdings make up 53% of the portfolio and it is worth looking at a few of those who are forging ahead and increasing in value whilst most stocks are suffering.
Baillie Gifford's mantra is that they are actual investors, not active investors. What sets Scottish Mortgage apart is its willingness to truly invest in new ideas. They look long term and many of their investments will not succeed, but those which do, win big.
They were early investors in Amazon, Spotify and Netflix, obvious winners in this lock down world, but their growth is likely to continue as habits change.
Less well known is Illumina, which represents 6.2% of the portfolio, it develops, manufactures and markets systems for the analysis of genetic variation and biological function. Their tools advance life science research and they have supplied, free of charge, to the global research community their tool kit to support the fight against Covid 19.
ASML, 3.8% of the portfolio, a Dutch company founded in 1984, is the only manufacturer of highly innovative lithography machines using EUV light to increase the value and reduce the cost of advanced microchips, the essential component of our technology driven lives. They state that we are not close to the fundamental limits of physics, and the next generation of chip design will enable the creation of consumer products we cannot conceive of at present. Right now, their products are involved in automated transportation and fast connectivity through 5G.
So although many industries have been hard hit, and some, even big names, may not survive, many companies are responding to the challenges. We believe that, post the virus, as we said in our recent newsletter in March, companies that are looking to the future and the future's challenges, such as human health and the health of the planet, will be key to future returns.
Funds positioned to be ESG positive have fared better in this crisis than many of their mainstream equivalents. In general they try to avoid the polluting industries, in favour of science leading alternatives and hence have not been dragged down, on days like today, by the global reaction to the expiration of the May oil futures contracts, as traders scrambled to avoid taking delivery of masses of barrels of oil. Storage facilities have no more capacity, meaning traders were literally paying to have their oil taken off their hands. Until economies can reopen and demand for oil increases, we expect this turmoil to continue.
In the meantime, our advice remains to make no portfolio changes, until we believe the time is right.
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