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Tips for investing during the coronavirus pandemic

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Written by: Graham Spooner
26/05/2020
Investors need to adapt their way of thinking during these unprecedented times, according to investment expert Graham Spooner

Coronavirus has created a situation that investors have never experienced or had to confront in their lifetime.

Investors keen to continue planning for the future will almost certainly have to adapt their investing style to these new challenges, which could be far reaching and potentially game changing in ways future historians will look back on and view as a pivotal moment in time.

In what is a fast pace environment with daily news flow creating wild swings in markets, here are some suggestions for investors to consider in these most difficult of times.

Investing in volatile markets

At this time of year in the past, we might have suggested some individual stocks that we felt would have boosted a portfolio.

However, with so many companies cancelling guidance for the year ahead, this has created too much uncertainty; if the company itself has little idea of the outcome with regard to earnings, then fundamental analysis becomes rather tricky.

So, as an alternative, we give investors some broader things to consider:

  • The state of the market: be wary of shares that have fallen by significantly more than the market average, which was around 30%. The market has started to factor in the events and the consequences for individual companies. These companies may have made acquisitions which have stretched the balance sheet and now look poorly timed, or could be in industries that have seen their business virtually closed down, such as leisure or travel.
  • Company updates: less is not more when it comes to a comment on a company’s health. Groups with stronger balance sheets will be keen to highlight this, whereas others under greater pressure may give an update with their fingers crossed behind their back.
  • Behaviour of company leadership: have directors been taking advantage of the fall in the share price and buying shares? If so, this could be a sign that they see a value opportunity, and they’re confident in the company’s long-term future. Equally, if they’re not taking advantage of the lower price, this could be a foreboding sign of the opposite.
  • Thinking ahead: give some thought as to what will be required for the economy to recover, and which companies will be able to survive. Can a company adapt or cut costs? Will there be an underlying demand for their products and services? For example, sectors such as pharmaceuticals, technology, and utilities will always be needed.
  • A chance to diversify: this may provide an opportunity for you to broaden your portfolio by diversifying into other areas.

Investing through a fund

Private investors may decide that the risk is just too much at the moment and that they need some help.

If this is the case for you, it’s strongly advisable to take advantage of a fund manager’s expertise and resources.

Although many managers are highlighting the unprecedented situation that the world finds itself in and the doubts that are coming up as a result, they (and their analysts) will be actively looking to take advantage of the dip in the market.

One way they’ll be able to do this is by adding investments to their holdings that they’re confident about in regards to their financial position and long-term outlook. During this time, these investments will most likely be at lower prices, which can also help.

A fund manager with a good track record via either an open-ended unit trust or an investment trust is likely to be the preferred route of many, with the latter having seen average discounts initially widen to over 20% with the average now around 7.4%. Because of the fast changing environment, we suggest going to the website of the fund management group to see if they have provided an update on the situation.

Some investment opportunities which have fared well during the recent market volatility are:

Polar Capital Technology Trust – With a market cap of around £2.3bn the fund is the largest and most liquid of its peer group. Led by Ben Rogoff whose monthly commentary is a recommended read, the focus remains on bottom-up stock picking, along with the identification of core growth themes. The share price took an initial hit as a result of the crisis but quickly returned to the levels seen in February.

The manager highlights the strong balance sheets in the sector along with high margins and recurring revenues. He also points to the role played by technology over the crisis and how areas such as cloud computing and e-commerce will be long-term beneficiaries.

Monks Investment Trust – Monks seeks to meet its objective of achieving capital growth through investment principally in a portfolio of international quoted equities. When investing, the company is prepared to move freely between different markets as opportunities arise.

The equity portfolio is relatively concentrated for a global fund. Management highlights four different investment types within the portfolio: growth stalwarts, cyclical growth, rapid growth and latent growth. The portfolio value was hit hard in the dash for cash over the first half of March, but has since experienced a substantial recovery.

Worldwide Healthcare Trust – As the name implies the objective of this trust is to actively invest in the global healthcare sector with the goal of achieving a high level of capital growth. The trust invests in the shares of a diversified portfolio of pharmaceutical, biotechnology, healthcare equipment, services and technology companies.

There are a number of significant underlying factors driving growth in the healthcare sector which make it an attractive long term choice for investors. Prime among them is the increase in the number of older people in developed countries, predicted by some to reach two billion by 2050.

New technology, a wider range of available drugs and company mergers should also boost the growth and returns for shareholders.

Worldwide Healthcare has a consistent growth record and a focus on specialist areas such as biotechnology and emerging markets. The current coronavirus has increased the focus on the sector along with its defensive qualities and long-term growth opportunities.

The value of the portfolio was hit hard over March, but there has been a V-shaped recovery and the share price is now back to February levels.

Graham Spooner is an investment research analyst at The Share Centre

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