November was record breaking for many reasons. The fastest ever vaccine produced, the first ever US president not to concede the election after polling results, and the best month for stocks on record. As we leave the political debate for another forum and focus on the vaccine news and rocketing stock prices, many investors will be left scratching their heads, and not for the first time.
Heading into November, there was increasing concern among investors with many looking to hedge risk or reduce market exposure. A contested US election and rapidly rising Covid cases were front of mind. While I held and expressed the view a vaccine was likely before Christmas, it seems this was not a widely held view. As such, the companies that have suffered the most since Covid, like banks, energy, travel and leisure, had not seen their stock prices recover by the end of October.
Therefore, the stage was set for a monster rally. Investors had no exposure to Covid recovery names, hedging risk and holding extra cash.
Rotation into recovery names
With now three pharmaceutical companies coming out with phase-III trial results that showed efficacy well above estimates, in some cases as high as 95%, investors cheered. Cash was deployed, hedging removed and so commenced a large rotation out of Covid beneficiaries into recovery names. The ‘risk-on’ mode also sent the Kiwi dollar flying, up close to 8% for the month, which is a significant headwind when investing offshore.
Pie’s long-term focus
The speed with which this rotation from growth to value occurred has been vicious and challenging even for nimble players like Pie to take advantage of. While the funds did have exposure to some recovery names, ultimately we are growth managers and our strategy is to buy businesses that are moving up and to the right. This strategy will not beat the index every month but, as 2020 shows, it has the ability to deliver long-term outperformance.
In saying that, most of the portfolios have now been tilted to have a proportion of the fund in recovery names, and even though they have been badly affected by Covid, they are still good businesses we expect to return to strong growth by 2022. We’ve also taken profit in some of our best performers for 2020.
So, in summary, although we weren’t able to match the indices this month, all the funds were up strongly. I hope you will head into Christmas pleased with how we have performed for you in what has truly been a remarkable year.
This month we also welcome Anna Sullivan as our new Chief Operating Officer. Anna has extensive experience in financial services at a senior level particularly in the operations, regulatory, legal and governance areas. Her most recent professional role was as COO for a listed boutique investment bank in London. Anna originally qualified as a barrister and solicitor in New Zealand and re-qualified as a solicitor in England. She has an LLB (Hons) and BCom from Otago University and an MSc from Oxford University in the UK.
We also welcome Matt Young, our new Investment Analyst. Matt is a Chartered Financial Analyst (CFA) with a demonstrated history of working in the capital markets. He has been working for ShareClarity as a research analyst for the past four years.
Thanks for your support
The next Slice of Pie newsletter will be out mid-January, after the holiday break.
Thank you again to all our wonderful clients. Many of you were extremely supportive back in March and, on behalf of the team, I would like to extend a heartfelt and appreciative ‘cheers’. We really value your business.
We wish you a wonderful festive season and, as always, thank you for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, [email protected]
Signing off in 2020 for the last time,
Mike Taylor, Founder and CEO
Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.