4/9/2020 12:00:00 AM

Investor Update (09/04/20)

Dear Investor,

We hope you’ve had a good week.

Please find below our weekly video update along with the written version.

This week we cover off the following questions:

  1. What are the latest developments in financial markets?
  2. We’ve all heard people talking about investing in surgical masks, gloves, toilet paper. Have you been investing in any of these things?
  3. What are the new themes emerging and how can we benefit? 
  4. You mentioned ‘priming your cash canon’ in the newsletter. What did you mean by that?
  5. What are your predictions of how this will play out?

Please send through any questions you have to [email protected]nz  and we will either respond directly or answer them in the next week’s video update.

I hope you have a great Easter weekend.

Kind regards,

MIKE TAYLOR
Founder and CEO


 

 


Written version

I’m Sam de Court and with me I have Mike Taylor and Victoria Harris. Victoria is part of our international investment team and is portfolio manager of our Climate Friendly fund.

We’ll start with you this week, Mike. What’s happened in markets over the last week?

Mike Taylor: What we’ve seen in the past week is almost like a decompression of markets, a relaxing of the stress people have been under through most of March, so that has meant that risk assets have had a bit of a positive tone. We’ve seen assets like the Kiwi dollar recover and markets just generally feel a bit more relaxed in the last couple of weeks, as you will have seen in our unit prices recovering. The main reason for that seems to have been the daily case number of COVID-19 has fallen from a peak of just over 100,000 a day, down to the 60,000 mark, globally.

Sam De Court: Now, Vic, we’ve all heard people talking about investing in surgical masks, gloves, toilet paper. Have you been investing in any of these things?

Victoria Harris: Not directly. Of course, demand for these products at the moment is really heavy, and will probably be short-lived as well. I think investing in short-term trends isn’t sustainable. These growth rates, while they’re high at the moment, they won’t stay that high. So, in my opinion, investing for the short term isn’t investing, it’s trading, and if you’re a trader, then timing’s everything and getting timing right in this environment is very difficult.

I prefer to look for long-term trends and long-term changes that are occurring to industries as a result of COVID-19. There are so many social changes going on right now and I certainly think that some of these changes will have a long-term effect on how businesses and people will operate.

Sam De Court: If we stick with the themes trend, what are some new themes that you’re seeing emerge due to COVID-19 and how can we benefit from these themes as investors? 

There are two to touch on. The first would be the working from home theme. Because COVID happened pretty quickly and the subsequent lockdowns, a lot of companies were unprepared to have their entire workforce work from home. They didn’t have the necessary infrastructure in place, and implemented a band-aid solution. So, COVID was a real wake-up call for those companies and I think we’re going to see a long-term reliance on IT, which leads to an increased spend in IT, increased cloud spending. Companies will want to make sure that they have the correct systems in place and a flexibility should this, god forbid, happen again. Staff might actually prefer the flexibility of working from home, going forward.

I actually witnessed this first-hand.I was in Noel Leeming the day before the lockdown and there was a queue out the door and down the street as everyone scrambled to prepare to be working from home. So, I guess, one company that will benefit from this is Microsoft. It’s one of our largest positions in the fund. They’re benefiting. Their personal computer division is benefiting. Microsoft Teams is benefiting, which is their messaging and video conference product. And then Microsoft Azure, which is their cloud offering and they actually run X-Box as well, and that’s benefiting from all the gamers sitting at home right now.

Another theme would be e-commerce. This is a trend that we’ve been seeing for a while now, but there are still people who prefer to buy from bricks-and-mortar stores and, with COVID-19, online shopping’s almost become a necessity, they have to do it and they’re realising the experience is actually OK. I think a large amount of those people will stay online shopping and I think COVID-19’s really broken down that barrier to online shopping. And this is particularly true of older people. Even my parents, who are in their seventies, are buying online now.

I guess one company benefiting from this is Amazon, which accounts for a third of all e-commerce spending in the US, and they’re a natural beneficiary of more online spending. And also, they’re the largest cloud provider, too, with AWS, so they’re benefiting from the previous trend I mentioned, which is working from home.

A few others to mention, quickly, would be online education – so, similar to the working from home trend, I think students will get a bit more comfortable with learning online. Localisation of supply chain – I think a lot of companies will want to avoid the disruptions that they’re seeing now, in the future. And on the payments side – with the World Health Organisation coming out and saying people should avoid using cash, that will really accelerate the move to digital payments, and that could benefit the likes of Mastercard and PayPal in the long term.

Sam De Court: Thanks, Victoria. Mike, we’ll switch to you now. In the newsletter, which is due to go out today, you mentioned ‘priming your cash canon’. What did you mean by that?

Mike Taylor: I guess what we meant by that, Sam, is we have been talking about in the investment team looking to try and identify when is an appropriate time to invest Pie’s cash, while acknowledging that we’re very unlikely to get the exact bottom, because, as people say, there’s no ringing of the bell at the bottom.

What is the most challenging point at the moment is really the unknowns. For example, what is the likely damage from COVID? And when I look around and read the analysts’ reports globally, there’s just so much divergence – from people calling to outright depression, to some saying that it’ll all be over by June and we’ll be racing out on a V-shaped recovery – so we’re working out what is the most likely outcome and, of course, it’s really just guesswork at this stage.

But, as I’ve alluded to before, we are looking at things like unemployment levels, and the data’s just still not out on that yet. We’ve had some initial numbers from the US, but we really need to get through April to see where the unemployment figures are going to settle. But the thing about markets is, as soon as they can see light at the end of the tunnel, even though they might be in the middle of the tunnel, markets will bottom. That’s a regular thing with markets, they tend to do that.

We’ve got to be very quick as to when we identify signs and not fall into the trap of saying: “But there’s still so much bad news”, because that’s often the case, that’s there’s still a lot of bad news around a market bottom, so it’s a challenge, and it’s unlikely that we’ll tip all our money into the market in one day, it’s going to be staged, because we don’t want to get it wrong. We are priming it, we’re looking for ideas and we’re certainly getting ourselves into a position to deploy.

Sam De Court: So, Mike, I’ll put you on the spot a little bit now… what are your predictions of how this will play out?

Mike Taylor: Yes, Sam, I knew you were going to ask me that, and it’s a bit of a tricky question because whatever I say now will be held against me in future meetings, because unfortunately, it’s most likely to be wrong because it is just guesswork. I’m honestly doing a lot of reading on COVID and the effects, and some of the things I’m particularly looking at, is China and how China is recovering. In some cases, there is sufficient evidence to say that they are recovering quite quickly.

The challenging part for China, of course, is that global demand has collapsed. So, it’s quite hard to work out if they would have recovered more quickly had the rest of the world been OK. And I think the answer to that is they probably would have. They seem to have adapted quite well to wearing facial masks and undergoing stringent testing, and adapted their lifestyles. In fact, it was a holiday weekend in China over the weekend just been, and I’ve seen images of large crowds of people visiting tourist sights, wearing masks but of course in close proximity to each other. So, that is a relatively positive sign for the rest of the world, that actually, once we kind of get free of the virus people might start to feel more comfortable to go back into public places, so that’s a positive.

And, on New Zealand as well, I think, fingers crossed at this stage that we seem to be coming out of this quite well in terms of how we’ve controlled the virus, so possibly we may be another country to look at as to how the rest of the world could go in three or four months’ time.

So, long-winded answer is possibly that I don’t see an outright depression, because of the stimulus that’s been put in place, and the attitude of the majority of the people who, let’s be realistic, haven’t actually contracted the virus, who are quite keen to get back to normal life, which kind of leads me to be a bit more positive for the second half of the year… with a caveat that some sectors will not be recovering at the same speed, for example, commercial property, travel and tourism, and hospitality.

Sam De Court: Thanks, Mike and Victoria, and thank you everybody for watching. We hope you have a great Easter and we’ll see you next week. 


To download our product disclosure statements, go to www.piefunds.co.nz.  Past performance is not an indicator for future returns. This information is general in nature only. Before relying it on it, we recommend you discuss with an expert

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