15/01/2021
A Fund Managers Outlook
Threading the needle
6th January 2021
Prime Minister Boris Johnson addressed the nation on Monday, expressing his hopes to ramp up distribution of the vaccine in order to protect tens of millions over the next few months. Recent development in support of vaccination has sparked optimism in the face of the pandemic – a welcome signal that the end is now in sight, and a sigh of relief for investors.
Moderna, a Massachusetts-based biotech company, has been the latest to announce successful trials for their vaccine which is nearly 95% effective, similar to that of Pfizer and BioNTech. As the world embarks on the greatest vaccination programme in history, the pace of vaccinations in the UK is accelerating, following the arrival of our own Oxford AstraZeneca vaccine. As of 5th January, 1.3 million people in the UK had received the first dose of the Covid-19 vaccine. The race is undoubtedly on as Boris Johnson stated in his address to the nation "so far, we in the UK have vaccinated more people than the rest of Europe combined"1.
While we are encouraged by a return to normality sooner rather than later, the overriding factor is the speed at which the vaccine can be administered. As we have seen, the supply, coordination and logistical nature of the vaccination programme is complex. Given the rapid spread of the new strain of Coronavirus, the promptness of the rollout has become even more important if we are to avoid healthcare systems being overwhelmed. Despite the renewed threat of tougher lockdowns where cases are rising, markets across Europe rose higher on the first trading day of the new year. The FTSE 100 led the rally, jumping nearly 3% following on from the agreement of a Brexit trade deal.
Should the vaccine rollout be a success, we would expect a similar rotation to what we saw in November with retail property, travel and hospitality sectors benefitting from a return to customary trade. We have already seen this to some extent, with investors easing off online giant Amazon, and services such as Ocado on our side of the Atlantic. The share price of Zoom Video, the video conference software company, has slumped as much as 18% since the Pfizer's vaccine news, while shares in other video streaming companies such as Netflix also dipped, though to a lesser extent. On a year to date basis, these web-based companies have retained significant growth, yet there are marks of rotation out of these sectors none the less. Value stocks are experiencing a rebound, and the price of oil is back up near its eight-month high.
We have become more cognisant of the valuation risk of some of these top performers in 2020 and have been transitioning our funds across to fund managers who take less exposure on these companies. One notable example of this within the LGT Vestra Model Portfolios was the recent switch into the Evenlode Global Income fund. The fund continues to focus on high quality companies but has a far greater focus on valuation than our other global growth funds. Whilst it is tempting to reallocate to sectors that screen as cheap and could benefit on positive vaccine news, we are well aware that there are several hurdles for these companies to overcome and many will not survive. A number of these companies have suffered significant balance sheet deterioration and may struggle once government support is lifted, as such, we continue to have a bias to quality/growth assets that we believe can outperform in the long run.
1 Speech - Prime Minister's address to the nation: 4 January 2021
