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Saturday, March 27, 2021
LEARN MORE ABOUT YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBIL!
Friday, March 26, 2021
Red, Red, Wine, stay cose to me...!
As Lazio is in 'zona rossa' until Easter 2021, I can only think of one song title which keeps filling my mind as I relive the experience of DAD (didattica a distanza - online schooling) once again:
Red, Red, Wineeeeeeee, stay close to meeeeeee!
Between the sips, I wanted to share with you a few nuggets of information from the investment world in this newsletter.
I was on a zoom conference call with
Jupiter Asset Managers in London last week, and they were providing an
update on financial matters, economic recovery and where they see the
green shoots of recovery from Covid, as well as much more. As always, I
am less interested in the technical talk and more interested in
understanding the human story which can help us to make sense of what is
going on and more importantly give us confidence that the people
managing our money have their fingers on the pulse.
So, here are a few things I learned and which might interest you as well.
VACCINES AND HOLIDAYS
The first vaccine was approved on the
10th November 2020 and, apart from the slow uptake, and more recent
issues surrounding the AstraZeneca vaccine, the logic is that the mass
roll out of vaccinations will quite quickly relieve health services
around the world and free up the space it needs to start economies
functioning normally again. This will in turn get people back to work!
The UK, interestingly, is well ahead with the vaccine rollout and should
be one of the first major economies to open up fully again.
Now, you may have an opinion on how people may react once things start opening up again, but we also have an example of just what could happen when things return to normal and we don't have to look any further than the origin: China.
China is effectively Covid free now, or at least they are managing to control any outbreaks through effective mass testing and isolation. From an economic standpoint they have rebounded well, posting growth of 2.3% in 2020 and up 6.5% in the last quarter, and it is worth remembering that they arguably had the most severely imposed and longest lockdown of any country. The recovery figures are impressive and you may wish to take them with as pinch of salt, but if they prove to be true then it would appear that economies can get back on track quite quickly. The question is whether EU countries will also follow a similar trend. I suspect after some initial hesitation, that human behaviour will quite quickly return to pre-Covid patterns. I don't know about you, but I can't wait to attend a really good music event again or have a great night out with friends.
Now, you may have an opinion on how people may react once things start opening up again, but we also have an example of just what could happen when things return to normal and we don't have to look any further than the origin: China.
China is effectively Covid free now, or at least they are managing to control any outbreaks through effective mass testing and isolation. From an economic standpoint they have rebounded well, posting growth of 2.3% in 2020 and up 6.5% in the last quarter, and it is worth remembering that they arguably had the most severely imposed and longest lockdown of any country. The recovery figures are impressive and you may wish to take them with as pinch of salt, but if they prove to be true then it would appear that economies can get back on track quite quickly. The question is whether EU countries will also follow a similar trend. I suspect after some initial hesitation, that human behaviour will quite quickly return to pre-Covid patterns. I don't know about you, but I can't wait to attend a really good music event again or have a great night out with friends.
PENT UP CONSUMER BOOM
One side effect of Covid lockdown is that many people are 'stuffati'
to have been at home for so long, and in many cases been unable to
spend money that they have been continuing to earn/save throughout. This
could unleash a potential consumer boom: splashing the cash, once
restrictions lift. Think holidays, travel and experience based
activities.
As an example of this pent up demand we only need to look at the cruise ship sector. I don't think there is a better example of a sector which has been brought to its knees than the cruise holiday industry. Many of the ships can no longer afford the mooring fees in large docks and so, without any business, have moored offshore. Off the south coast of the UK there are so many now, that they have become a tourist attraction in themselves, even inspiring a local entrepreneurial type to start tours to see the cruise ships up close ... and which are proving to be quite popular, see link below (no comment!)
As an example of this pent up demand we only need to look at the cruise ship sector. I don't think there is a better example of a sector which has been brought to its knees than the cruise holiday industry. Many of the ships can no longer afford the mooring fees in large docks and so, without any business, have moored offshore. Off the south coast of the UK there are so many now, that they have become a tourist attraction in themselves, even inspiring a local entrepreneurial type to start tours to see the cruise ships up close ... and which are proving to be quite popular, see link below (no comment!)
Similarly, in Australia, enterprising airlines have been running flights for those people desperately missing airline travel. The difference with these flights is that they take off and land in the same destination, adhere to strict Covid health guidelines and are relatively short in duration. However, these are all temporary measures to keep money coming in and businesses from going bust. What they are really waiting for is things to return to normal.
From an investment point of view this presents opportunity! It provides opportunities to purchase into businesses which have been severely damaged due to Covid but will benefit from a recovery: Rolls Royce for new aircraft engines and maintenance, Easyjet which has been working on the bare minimum of service, cruise liner companies themselves, the entertainment, music and leisure industries. Essentially, anything outside technology, communications, healthcare and utilities has performed pretty badly since March 2020.
As the spread and effect of Covid is brought under control, so will prospects for consumer based companies increase. In fact, most of the investment management firms that we work with have already started to take positions in companies which will benefit from a post Covid consumer boom.
WHEN?
If only I had a crystal ball! The
biggest question with investing is when will it happen? That is
something we cannot foresee right now, but it will happen. A recovery
may present itself in different ways around the world. Human nature is
such that different demographic groups may respond within different
timescales. Those affected more greatly by Covid will obviously be more
cautious moving forward. The younger generation are likely to respond
more quickly. The art of the investment manager will be to get behind
the right companies that will benefit the most at the right time.
CAUTIONARY NOTE: There
is also a flip side to every coin and those sectors which have
performed incredibly well recently: Tesla, Facebook, Amazon, Alphabet,
Netflix, Google (FAANGs) for example, may see their stock prices slow or
even fall back. These stocks, in particular, may also be affected more
by Government regulatory policy in the coming years, than a return to
pre-Covid activity levels.
ENVIRONMENT / SUTAINABLE / GOVERNANCE INVESTING (ESG)
You may remember that in 2019, I
returned from our Annual Conference and wrote a newsletter about investment
companies jumping on the ESG bandwagon. This seems to have continued
unabated and now it would seem that virtually all new investment funds
have some kind of Eco/ESG message.
The truth is that Eco/ESG related investing is a bit of a double edged sword. On one hand the financial and corporate world seems to be finally taking its responsibilities seriously, on the other hand, just how clear the lines are is another discussion altogether. I think that the lines around pure Eco/ESG investing are going to become more blurred in the coming years as mainstream players, laden with cash, are also going to be pouring into the sector. It will likely lose its specialist sector characteristics and start to look like the mainstream. As a simple example, we can use the oil companies, who we know have a terrible global carbon footprint, but who are also starting to become some of the biggest investors in sustainable energy: wind, solar etc. Another example that springs to mind is IKEA. I don't credit IKEA with high points in any of the ESG categories (maybe Governance!), but they are now investing heavily in a reclamation and recycling programme of old furniture. Could this make IKEA a good ESG investment for the future?
Where it gets complicated for investors is when you have to choose from the information available to you. For help there are always companies, institutions and rating agencies who will score ESG investments and companies for us. The only problem with these is that they use different metrics and it is hard to compare like with like.
MSCI (Morgan Stanley Capital International), ESG score Tesla one of the highest rated ethical companies for its rapid move into electrification of the automotive industry. FTSE, on the other hand, give it one of the worst ESG scores due to the fact that they need to use huge quantities of rare metals to produce the batteries, they have bad corporate governance and their profits are non-existent. So who are we to believe? My advice is to leave it the experts! We recommend funds like Jupiter Ecology fund, Janus Henderson Ethical fund, Liontrust Sustainable Future, and Regnan investor funds to clients due to their quality and due diligence in this sector.
The truth is that Eco/ESG related investing is a bit of a double edged sword. On one hand the financial and corporate world seems to be finally taking its responsibilities seriously, on the other hand, just how clear the lines are is another discussion altogether. I think that the lines around pure Eco/ESG investing are going to become more blurred in the coming years as mainstream players, laden with cash, are also going to be pouring into the sector. It will likely lose its specialist sector characteristics and start to look like the mainstream. As a simple example, we can use the oil companies, who we know have a terrible global carbon footprint, but who are also starting to become some of the biggest investors in sustainable energy: wind, solar etc. Another example that springs to mind is IKEA. I don't credit IKEA with high points in any of the ESG categories (maybe Governance!), but they are now investing heavily in a reclamation and recycling programme of old furniture. Could this make IKEA a good ESG investment for the future?
Where it gets complicated for investors is when you have to choose from the information available to you. For help there are always companies, institutions and rating agencies who will score ESG investments and companies for us. The only problem with these is that they use different metrics and it is hard to compare like with like.
MSCI (Morgan Stanley Capital International), ESG score Tesla one of the highest rated ethical companies for its rapid move into electrification of the automotive industry. FTSE, on the other hand, give it one of the worst ESG scores due to the fact that they need to use huge quantities of rare metals to produce the batteries, they have bad corporate governance and their profits are non-existent. So who are we to believe? My advice is to leave it the experts! We recommend funds like Jupiter Ecology fund, Janus Henderson Ethical fund, Liontrust Sustainable Future, and Regnan investor funds to clients due to their quality and due diligence in this sector.
INFLATION
There is a lot of talk about inflation
rising to significant levels when economies return back to normal.
Whilst this is very likely in very elastic economies like the USA, it is
likely to be less significant in the Eurozone, although it cannot be
discounted altogether.
Price inflation normally follows wage inflation and there appears to be little chance of the opportunities in employment changing significantly in Europe even when Covid passes. The under 25 year old unemployment rate in Italy is now at approximately 30%. The depressed employment market in Europe is, in general, more to do with endemic long term demographic and political problems than anything caused by Covid. Covid has just exacerbated the problem. That doesn't mean to say that the situation cannot be changed for the better, but the EU will have to go big and bold ... don't hold your breath!
Despite the EU being unlikely to make significant changes, there is a real threat of increasing prices for many goods and services, especially where they are imported from abroad. The world of trade is more interconnected than ever and inflating prices in one area of the world could very quickly seep through to other parts of the globe. How do we counter this effect with our money? Don't sit on too much cash and invest your money for the future! Don't think that you can deal with any inflationary issues when they happen. By that time it is too late and the cat is out of the bag. If you are concerned about protecting your lifestyle long term, you need to make your money start working for you straight away. You just want to preserve your ability to take regular holidays, pay the increasing gas bill, or even ensure that you have sufficient funds in old age to pay for medical care. Whatever the reason, get ahead of inflation and don't play catch up when it is too late!
Price inflation normally follows wage inflation and there appears to be little chance of the opportunities in employment changing significantly in Europe even when Covid passes. The under 25 year old unemployment rate in Italy is now at approximately 30%. The depressed employment market in Europe is, in general, more to do with endemic long term demographic and political problems than anything caused by Covid. Covid has just exacerbated the problem. That doesn't mean to say that the situation cannot be changed for the better, but the EU will have to go big and bold ... don't hold your breath!
Despite the EU being unlikely to make significant changes, there is a real threat of increasing prices for many goods and services, especially where they are imported from abroad. The world of trade is more interconnected than ever and inflating prices in one area of the world could very quickly seep through to other parts of the globe. How do we counter this effect with our money? Don't sit on too much cash and invest your money for the future! Don't think that you can deal with any inflationary issues when they happen. By that time it is too late and the cat is out of the bag. If you are concerned about protecting your lifestyle long term, you need to make your money start working for you straight away. You just want to preserve your ability to take regular holidays, pay the increasing gas bill, or even ensure that you have sufficient funds in old age to pay for medical care. Whatever the reason, get ahead of inflation and don't play catch up when it is too late!
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