It’s been six months now since markets bottomed out and lockdown was imposed across many parts of the globe.
While extraordinary efforts from numerous central banks across the world have sought to underpin financial markets, it seems we are as unsure as ever about where the global economy goes from here, particularly as the chances of a second wave become more likely.
As unemployment begins to rise, I think the chances of a V-shaped recovery have now become more far-fetched and I would not be surprised if discussions shift towards whether we are set to move from recession to depression.
That does not mean there will not be opportunities for investors. Because of Covid we know there are certain areas which are structurally challenged – the likes of leisure, travel and retail – and will continue to be for the next couple of years. By the same token, the likes of technology and healthcare have been flourishing and I expect there will be other sectors which will benefit from what is likely to be the biggest catalyst for change in our lifetime.
These are the opportunities that only active fund managers can take advantage of at an early stage, particularly a fund which has a “go anywhere” mandate. Here are four global funds that can take advantage of these changes in society.
LF Blue Whale Growth
Managed by Stephen Yiu, this fund holds an absolute maximum of 35 stocks, paying no attention to indices or benchmarks. Businesses with structural challenges or those which are difficult to forecast are generally avoided and a lot of the team’s work begins with detailed industry analysis. More than 50% of the fund is held in the top 10 holdings*. The fund has a high allocation to technology (currently 60.8%*), as Stephen believes we are now in the midst of a generational shift in the widespread adoption of digital infrastructure that’s been 30 years in the making. Over the past three years the fund has returned 72.6%** to investors compared with 28.7%** for the IA Global sector average.
Baillie Gifford Global Discovery
Douglas Brodie and his team take an unusual approach when looking for investments. They don’t use generic screens to create lists of potential stocks, nor do they use broker research. Instead, the team thinks about the kinds of companies they would like to invest in and undertake fundamental stock research to find opportunities. They have a keen eye on diversification, so Baillie Gifford Global Discovery has between 75-150 stocks in no less than six regions at any one time. More than 55%* of the fund is currently held in technology and healthcare stocks. The fund, also in the IA Global sector, has returned 108.1%** over the past three years.
Guinness Global Innovators
Managers Matthew Page and Ian Mortimer have identified nine core innovation themes through research. These are: advanced healthcare; artificial intelligence and big data; clean energy and sustainability; cloud computing; internet, media and entertainment; mobile technology and the internet of things; next generation consumer; payments and fintech; and robotics and automation. Companies with a market capitalisation of over $1bn and with exposure to these themes are included in the managers’ universe. Stocks are assessed on four different metrics: quality, growth, valuation and momentum. The portfolio is made up of 30 equally-weighted stocks with an average holding period of three to five years. The fund has returned 47.4%** over the past three years.
T Rowe Global Focused Growth Equity
David Eiswert, with the assistance of a considerable analyst resource spread globally, builds a portfolio based on key themes. He looks for companies that are improving, seeking those with the potential for above average and sustainable rates of earnings growth. The investment universe begins with approximately 4,000 global developed and emerging markets equities with roughly $1bn or more in market capitalisation. David uses proprietary, fundamental research from T Rowe’s global research platform to reduce this to 600 to 700 possible stock choices. As a former tech manager, David finds opportunities in sectors such as IT, consumer discretionary and healthcare, but will be underweight in energy and materials. The fund has returned 80.6%** over the past three years.
*Source: fund factsheet, 31 August 2020
**Source: FE Analytics, total returns in sterling, 18 September 2017 to 18 September 2020
Darius’s views are his own and do not constitute financial advice.
