How has coronavirus affected your day-to-day work (from a portfolio and workplace perspective)?
Like most office-based workers, we are now working remotely and making very good use of the myriad forms of communication open to us – Microsoft Teams, Slack, WhatsApp and good old fashioned email. Our communications with clients and with our investee companies have also moved online, and it’s been a surprisingly smooth process; while we had our business continuity plan in place we never wanted to actually use it. Online works fine but it’s still a poor substitute for the real thing and I think we’re all looking forward to interacting in person once the crisis passes.
From a portfolio perspective there has been a lot of work to review holdings in the light of the new situation and a lot of interaction with companies. We are long-term investors so everything needs to be cast in that light, and we believe that good companies will, like with most crises, emerge even stronger even if there is some difficulty in the near term. We have added three new holdings over recent weeks to take advantage of the better valuations on offer, and dusted down a number of other ideas that might prove interesting depending on how things proceed.
How are you getting to grips with the epidemiology of coronavirus?
Listening to the news, which I guess is much like everyone else. There are some interesting talks by epidemiologists online which help to contextualise what’s happening, but as this has not happened on a global scale for over a century I think everyone is learning as we go, even the experts – intercontinental air travel was not a factor during the Spanish flu for example.
How have you changed the portfolio in recent weeks as the crisis has escalated?
We disposed of one holding, Sabre, which is a US business that operates a global distribution system for airline tickets. The grounding of planes is obviously a negative for the company, but it’s that combined with the fact that it has debt that meant the risk profile has deteriorated more markedly than it otherwise would have. We have added three businesses to the portfolio from our investable universe where the valuation has improved as a result of the market falls. Paychex is a US payroll and business services outsourcer, Hexagon is a Swedish technology business focusing on software and hardware for positioning with applications in things like smart agriculture and industrial automation, and CTS Eventim, a German ticketing business. The latter is very interesting, as it sells tickets for live events such as music tours which are almost completely shut down now. But in normal times it enjoys dominance within countries and it has a very strong balance sheet to get it through the current situation.
Do you have any behavioural mechanisms in place for navigating the market volatility?
Our valuation and maximum position size frameworks are a critical part of managing our behavioural psychology. We separate out the assessment of a firm’s qualities from the assessment of value (although the former informs the latter), deliberately to avoid any influence of market price movements affecting our perception of the merits of a business. All businesses face risks, even the best ones, and we grade a company on a range of risk factors. These grades then inform our maximum position size for any company, which is a hard limit above which we cannot go. This prevents us from giving undue weight to a company just because it looks cheap, when it might be tempting to ignore the risks.
What has surprised you most about markets during the coronavirus sell off?
It’s our constant working assumption that equity markets are volatile, and investing in them should be a long-term, multi-year endeavour, so the sell off hasn’t been particularly surprising, more par for the course. In fact, the relatively low volatility in the years preceding it was a bigger surprise. What’s surprised me is how quickly governments have acted in response to the pandemic to support businesses and the public, and it will be interesting to see how much of that support is needed as we proceed through the crisis, and what effect that has on business operations and valuations.
What are the most important points you want to hear from your holdings at the moment?
We are always interested in strategy and we want to hear that companies are looking to contribute positively to the crisis where possible in the near term, while maintaining their focus on the long-term customer proposition. We want companies to take actions that preserve the good qualities of their business so that they can continue to thrive once things get back to something like normal. That might be continuing to invest in their people, supporting them through the crisis, and continuing to develop products and services where they can. Acting prudent financially is also important.
How do you find working remotely during volatile markets?
Functionally it works fine, I’m lucky to have a study with a set up that’s the same as my desk in the office and an understanding family. I miss being in the office with my colleagues though, they’re a great bunch and are working hard for our clients as we navigate our way through this situation.
How does this compare to other market sell offs that you’ve managed money through?
We launched the Evenlode Income fund coming out of the jaws of the great financial crisis and there are similarities with huge market swings within days and a general sense that no-one quite knows how it will pan out. But another similarity is a sense of hope – humans are ingenious, we made our way out 10 years ago with some innovation and creative thinking, and I’m very sure the same will apply to this crisis thanks particularly to the tireless work of healthcare staff and supply chain operators.
What do you do for fun when you take a break from working at home?
I’m a keen cyclist and so I’ve been getting out on my bike for my daily exercise. I also have a kick around in the garden with my youngest daughter Bea who plays for the local girls football team (though I’m hopeless at football), and attempt to help my teenage daughter Rose with her maths and science work (with mixed results).
What is your favourite snack when working from home?
Marmite on toast, layered on inch-thick!
Do you have a ‘top tip’ to share on working remotely?
Be in contact with your colleagues, by video if possible. Seeing people’s faces is second-best to seeing them in person, but much better than communicating by text. We have a daily video ‘stand up’ at 10am where we share what we’re up to and how we’re feeling, which has proven to be a huge help to work and certainly keeps my morale up day to day.
Ben Peters is co-manager of the Evenlode Global Income fund
