This is why managers have said they are reviewing their portfolio holdings case by case, and focusing on those sectors and stocks where the prospect for longer-term performance is evident.
Mr Podger explains: “We have been adding holdings where valuations are cheaper, but three-year earnings prospects may be better than previously expected – mostly growth names – and also where stocks have performed poorly but the market has been unduly short sighted.
“Specifically, we have been adding to US health care, US refining, utilities in the US and Europe, and Asian insurance. We are also looking at Japanese electronics and machinery, which sold off more than fundamentals justify, as well as UK domestic names. Beyond that, we have a growing list of potential new investments in both value and growth names.”
Kroll’s analysis backs this up, with growth areas continuing to emerge in clean energy, such as Norway’s increasing output of electric cars, pharmaceuticals – as vaccines development gets underway – and luxury goods, as China’s big spenders start to make the most of the end of their lockdown.
Winners and losers
Mr Magnien’s view is that any business models rooted in the past will have to change now they have experienced this business disruption or they will fail. Stores that never operated online deliveries may have to make adapt quickly.
Care homes – a previously “safe infrastructure investment” – may face huge litigation costs over their handling of Covid-19. “So you need to make careful decisions,” he said.
But when it comes to a battle for survival, he does not think it is as simple as small or large. “With a crisis like this, governments such as the UK’s are doing the right thing to open the tap.
“The real risk is when the tap is closed – and the ability of firms to hold sufficient financial reserves will be very complicated. The smallest companies, unfortunately, will find it difficult to recover unless they have cash reserves.”
Therefore, clients without proper diversification may find themselves over-exposed to some pretty risky holdings.
simoney.kyriakou@ft.com
