This month:
Expert investment views:
Opportunities related to economic reopening inspire confidence in UK equities
The healthcare sector gets a positive prognosis due to innovation and attractive valuations
Continued threats to commercial property are highlighted which may make it an asset class to avoid
Featuring this month’s experts:
1. UK: Reopening
Insights from:
After an annus horribilis in 2020, UK equities, and specifically the economic reopening theme is a core investment focus for us. With the benefit of in-house specialist Simon Murphy (manager of the VT Tyndall Real Income fund, former head of Merian UK LargeCap equities), we can take a deep dive into companies like Next, DFS, JD Wetherspoon, and we see real opportunities.
Looking at the bigger picture, UK consumers are, in aggregate, emerging from the COVID crisis in a solid financial position due to government support. We have a good vaccination programme, interest rates are low, and our housing market is booming. As in any crisis, companies who have the financial strength and management acumen to take advantage of the opportunities will emerge stronger.
Looking at the bigger picture, UK consumers are, in aggregate, emerging from the COVID crisis in a solid financial position due to government support. We have a good vaccination programme, interest rates are low, and our housing market is booming
Next is a case in point. As shoppers return to stores, we should see benefits from increased sales (the “reopening” play), but the real story is Next’s online business. This now makes up over 50% of sales having grown consistently over the last decade. The icing on the cake is what Next term “Total Platform”: utilising their online infrastructure to sell third-party brands. This is a company which unashamedly “follows the money”, and which we are excited to own in both our Private Client portfolios and Real Income fund.
Our lack of a crystal ball (where did I put it?) leaves us to face the same uncertainties as all investors, but for these reasons we feel a level of confidence in UK equity reopening opportunities.
Edward Allen
Private Clients Investment Director at Tyndall Investment Management
2. Is it time to consider healthcare innovation within your portfolio?
Insights from:
The healthcare sector has a history of meaningful outperformance, but it has flagged recently amid concerns about drug pricing restrictions in the US. In a recent webinar we held on the topic, we heard the MSCI World Healthcare Index was trading at a discount of 15% to the MSCI World Index and the S&P Healthcare Index was at a discount of around 27% to the broader American market. This is below even the lowly valuations seen in the early 1990s and late 2000s, when Clinton and Obama threatened price caps on drugs. The sector bounced back strongly each time.
If relative valuations look appealing, so does the scale and pace of innovation we are seeing. The speed at which Covid vaccines were developed highlights the leaps being made. Other developments include drug treatments that stimulate the body’s own immune system to fight off disease, precision medicines that disrupt cancer’s progress by targeting specific proteins, and diagnostic tools that enable medics to detect cancer from blood samples, reducing the need for biopsies.
Enablers are the equivalent of shovel manufacturers in the gold rush – they provide equipment to support trials and testing and are reasonably easy to find with good research
We access this theme through “enablers” and “innovators”. Enablers are the equivalent of shovel manufacturers in the gold rush – they provide equipment to support trials and testing and are reasonably easy to find with good research. Innovators develop intellectual property – building a diverse portfolio of those is a job for specialist fund managers, in our view.
Dan Zegleman
Portfolio manager at James Hambro & Partners
Top Tip
Lee Goggin
Co-Founder
3. Commercial property – an asset class to avoid?
Insights from:
Looking back at the markets since the pandemic began, most of my clients have seen positive performance. However, there is one particular asset class that suffered, over which question marks remain.
Commercial property is often considered to be one of the four main asset classes appropriate for a cautious or balanced portfolio, alongside equities, fixed interest and cash. While the other three garner the most attention, commercial property is left somewhat in the shade. Traditionally it is seen as a relatively safe diversifier from equities, suitable as 10 – 15% of a balanced portfolio. With the potential to offer a rising income and some capital appreciation, it usually performs in-line with the economic cycle. However, the pandemic highlighted its greatest drawback, a lack of liquidity in traditional funds.
Perhaps a typical investor who is concerned about the wellbeing of their portfolio might want to check their exposure to commercial property and, for now at least, take a cautious approach
At the onset of the economic and market turbulence many UK property funds suspended trading, leaving investors unable to access their money until early 2021 when many reopened. So, has the worst passed?
Property required for online logistics and warehousing is an area in high demand, stretching valuations. In the retail space a structural shift is underway with too much space devoted to shopping; the adjustment will be painful. The future of offices has been widely debated as workers have got used to working from home. It is too soon to evaluate the tentative return of office workers to the capital. Optimistic stakeholders in this area have emphasised the importance of offices as collaborative spaces that support employee wellbeing. Perhaps a typical investor who is concerned about the wellbeing of their portfolio might want to check their exposure to commercial property and, for now at least, take a cautious approach.
Daniel Clarke
Partner at Partners Wealth Management
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
