Look past the coronavirus to see global fund opportunities
David Thomson was featured in Money Observer on 27th March 2020.
Markets have been hit hard by the virus, but a broader picture suggests the global sector will throw up opportunities.
The global bull market that began back in 2009 appeared to be gaining fresh momentum in the early days of 2020. Having faced myriad threats over the past decade, from terrorism and natural disasters to trade wars and constitutional crises, investors could feel relatively optimistic regarding the outlook for the global economy. Until, that is, coronavirus, or Covid-19, emerged as a potential ‘black swan’ event, sending markets tumbling and prompting the OECD to warn that global growth could be halved as a result.
The long-term effects of coronavirus can only be a matter of speculation, but the short-term impact on the supply chain quickly rippled through countries worldwide. Global manufacturing suffered the sharpest contraction in over a decade in February, according to the JPMorgan Global Manufacturing PMI, while manufacturing activity in China fell to the lowest level since records began in 2004.
Horns of a dilemma
This is the landscape that managers in the global sector must now navigate. If recent years have been relatively kind to global funds, stiffer challenges will lie ahead for some, predicts Simon Edelsten, co-manager of the Artemis Global Select fund and the Mid Wynd International investment trust.
“Quite often managers who do well in the short term have taken a lot of risk, and when something like coronavirus strikes this becomes apparent,” says Edelsten. “Markets began the year feeling bullish, so this has taken the wind out of investors more harshly than it might have done. This is one of those unknown unknowns that can strike at any time from nowhere. It affects all funds, but some worse than others.”
The global sector has been long been driven by US companies, reflecting their continued dominance of global indices. US firms account for 73% of the world’s listed IT sector and 65% of healthcare by market capitalisation, according to figures from S&P Dow Jones Indices.
“The US typically accounts for around 50% of fund weighting in the sector,” notes David Thomson, chief investment officer at VWM Wealth in Glasgow. “Accordingly, performance is significantly influenced by how well the US is doing.”