By Annabel Brodie-Smith
Well, what a strange month it has been! I am writing from my ‘new’ office – our kitchen. I have a ‘new’ colleague – my nine-year-old son Fabian, who is sharing my desk, the kitchen table, while attending a virtual geography lesson on his new laptop.
First of all, and most importantly, I hope you are all well and healthy. Coronavirus has been devastating for many people. We are so fortunate to have people working very hard in the NHS and elsewhere to keep us healthy and safe. It has also radically changed the way we live, work, shop and socialise. There are plenty of new worries, some are serious (my 83-year-old Mother is struggling in Wales) and some are trivial (why are people panic buying loo roll?) And not surprisingly with vast swathes of the world in lockdown, March has been a rocky ride for global markets. The FTSE 100 has had its worst three-month performance since the Black Monday crash in 1987, down 25%. It’s a similar scenario for the Dow Jones and the worst quarter for global markets since the financial crisis. At times like this it’s reassuring to hear from some of our most experienced managers like the legendary Peter Spiller, who has broken records by remaining at the helm of Capital Gearing Trust for 38 years. Peter has a wonderfully deep and commanding voice and I can almost hear him say: “In fifty years of investing I have experienced a number of bear markets. They do come to an end, so avoid despair and stay calm. Precise timing is more problematic, and usually impossible.” We hear from him and Austin Forey (25 years at JPMorgan Emerging Markets), Katie Potts (26 years at Herald) and Hugh Young (24 years at Aberdeen Standard Asia Focus). Talking of experience, our investment writer Ian Cowie has some heartfelt words of wisdom on the markets. He concludes: “Looking back over more than a quarter of a century as an individual investor, I would say the best time to buy shares is often when we least feel like it.” Of course, none of us know what markets will do next or what the extent of the impact of coronavirus will be, but after 23 years of investing myself I think Ian’s got a point. He also talks to Ben Rogoff of Polar Capital Technology on how technology may benefit from the long-term behaviour changes brought about by COVID-19. Ian talks to the manager of Worldwide Healthcare Trust on the outlook for the healthcare sector too. Healthcare is clearly front of mind and we recently talked to managers about the prospects for a vaccine and how their portfolio companies are contributing to the fight against the pandemic. It’s both comforting and fascinating to hear about their investments. Calculus VCT invests in Mologic, which is developing a rapid test for coronavirus, which could mean test results are provided in 20 minutes. International Biotechnology invests in Gilead, which has the most advanced potential treatment with an anti-viral drug called remdesivir, previously in development for Ebola. The managers remain positive about prospects for the healthcare sector, with Paul Major of BB Healthcare Trust explaining: “When the dust settles and COVID-19 has thankfully become a historical consideration, the ‘new normal’ will still feature the same demographic and societal drivers of a growing and ageing population.”
Finally, we are taking a look at the topical issue of dividends. This week it was announced that the banks are cancelling their dividends for 2019. Many other listed businesses have also announced they are cutting or suspending dividends. The dividend hero investment companies are the 21 investment companies which have increased their dividends every year for 20 years or more. They can do this because investment companies can squirrel away up to 15% of the income they receive each year from their portfolio when markets are good. They can then use this rainy-day fund (called the revenue reserve) to boost dividends in challenging markets like these. Of course, dividends are not guaranteed and this week the analysts at Winterflood have been looking at whether these dividend rises are sustainable. They conclude: “For the time being, we believe that these investment trusts are attractive for investors looking for a degree of dividend certainty”.
Similarly this week, Investec analysed the sustainability of dividends for investment companies in the UK Equity Income sector. They concluded these companies can withstand a 30% fall in portfolio income and still increase their dividends by 3% through using their reserves. Interestingly, if there was a further 30% fall in portfolio income for a second year, theoretically eight companies would still be able to pay a 3% rise, although their boards would have some difficult decisions to make as to whether this was in shareholders’ best interests or not.
I do hope despite all the depressing news you manage to have a healthy and as positive a month as possible. In the pursuit of staying sane, I have been doing the ‘Insanity’ exercise video, which is living up to its name, going for long walks and gardening.
On Friday my husband has a big birthday and instead of celebrating in Venice, we will be at home. But we are all beyond excited about the arrival of his surprise present, a barbeque.
Let’s hope the weather’s sizzling!
Wishing you a Happy Easter.
Annabel Brodie-Smith, Communications Director AIC
