12/3/2020 11:00:00 PM

CIO Report: ?Covid-19 vaccine a game changer

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Chief Investment Officer Mark Devcich discusses Pie's philosophy in light of the Covid-19 vaccine.

Covid-19 vaccine a game changer

Optimism surrounded the US election result, which swung from pre-election favourite Joe Biden, back to Donald Trump being a favourite as early polls were counted, then back to Biden as mail votes were counted. Perhaps more importantly for financial markets was the Senate will be controlled by Republicans which meant any extravagant Democrat policies such as large tax increases would be watered down. However, this may change again with both of Georgia’s US Senate seats having run-off elections on January 5. Markets cheered this initial result but it was only the start of the positive news for the month.

Shortly after the election was the initial vaccine news firstly by Pfizer then closely followed by Moderna and AstraZeneca. It was not a surprise the vaccines would be announced, but what was surprising was their high levels of efficacy.

The outcome was a large and sudden rotation into cyclical stocks away from growth and defensive sectors and a market that was very difficult to keep up with. Certain stay-at-home beneficiary industries were hard hit as the market began to look at what a recovery and a reopening in the economy would mean for their future prospects. Global markets had some of their best months ever, especially indices that had been poor performers year-to-date like emerging markets and Europe. Some of the moves have been euphoric. For example, travel-exposed companies whose earnings are estimated not to recover to pre-Covid levels for two to three years, are now trading at higher market capitalisations than they were pre-Covid.

Overall our portfolios are skewed toward growth companies and companies that have been able to thrive even in a low-growth environment. We continue to hold these as if there is an acceleration in the economy it should also mean their growth rates accelerate. But there is a risk the valuations of these companies could reduce in the short-term if interest rates increase substantially.

We have bought a selection of new companies, mainly in our global portfolios, that are good businesses negatively impacted by Covid and should recover strongly. But we are not changing our core philosophy of buying companies that can structurally grow earnings, have low financial gearing, and have high levels of cash generation.

Thank you for entrusting us with your capital.

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.