Institutional investors may have bumped up the portion of assets they are holding in cash to the highest levels since the immediate aftermath of the 9/11 terrorist attacks but funds managers and other professional investors haven’t stopped buying shares entirely. A majority have conducted a major spring clean in an attempt to limit the damage done by plunging stock markets, as well as better position their portfolios to, hopefully, recover faster. Which means buying as well as selling.
And, if data published by several major online investment platforms is anything to go by, private individual investors are actually investing more than they did before the Covid-19 pandemic-inspired stock market crash. Earlier in April, Interactive Investor said 43% of its account holders had increased their stock market exposure to only 10% who have reduced it. AJ Bell reports similar figures and budget online stock broking services such as Degiro and iWeb as well as Halifax Share Dealing have waiting lists for new customer accounts with their systems unable to cope with demand.
Private investors, at least those not already in or approaching retirement, have the luxury of being able to approach the stock market downturn as an opportunity. Increased buying activity is presumably with a view to riding the recovery back up for some big gains over the recovery. If investors are lucky enough to be in a solid financial position, they are able to take the risk of further volatility and slides before that unfolds.
Institutional investors need to balance shorter term and longer-term planning as those entrusting their money to them can be flighty. There’s a risk high numbers of their investors will abandon ship before a recovery if numbers look bleak in the meanwhile.
But when fund managers, wealth managers, hedge fund managers and the other professional investors entrusted with millions do buy shares at the moment, what are they going for? And what’s the thinking behind their choices?
Nick Train – Lindsell Train UK Equity Fund manager
Quoted in The Times, Lindsell Train UK Equity fund manager Nick Train says his fund’s approach is taking advantage of the market slump to boost holdings in the stocks he is convinced will either weather the storm better than most and others he sees as well positioned to hunker down in the short term and then flourish again longer term.
French brandy and spirits-maker Rémy Cointreau falls into the first category, along with Diageo. Despite increases in shop and supermarket sales alcoholic beverages makers are still suffering from a drop off in pub and restaurant sales. But the former is at least helping to balance things and companies with strong balance sheets in this sector, like others, may benefit from attractively priced acquisition opportunities in coming months.
Designer fashion brand Burberry may be seeing a slump in sales at the moment, especially as Chinese tourists are an important customer segment for the company. But Mr Train is convinced the iconic brand will bounce back strongly in the future, and its current share price will prove good value.
Paul Singer – Elliott Management
Watching what Paul Singer, head of Elliott Management, the U.S. hedge fund with a fearsome reputation as an activist investor, does is always interesting. The fund’s approach is to take stakes in companies it feels are undervalued and could do much better – if they listen to what Elliott tells them to do. It then sets about trying to force these companies into doing what it thinks they should and more often than not gets its way.
Elliott Management recently built up a $1 billion, 4%, stake in Twitter. Elliott were critical of Twitter CEO Jack Dorsey splitting his time between running the microblogging app and Square, the payments company he is also CEO of. The result has been an agreement Elliott and its ally Silver Lake, the private equity company, will each appoint a representative to the Twitter board and also have the choice of a third independent director in future.
Twitter has also agreed to a $2 billion share buyback programme – the equivalent to 10% of its equity. The activist investors are targeting cost cuts and a growth in profits and Twitter has anyway been doing well recently. Last quarter, the company grew monetizable daily users by 21% year over year, and revenue grew 14%.
Despite those positives, because of the company’s heavy investments, operating income actually fell 24% last quarter. But Elliott and Silver Lake will be optimistic Twitter’s financials will improve further with them applying pressure.
David Tepper – Appaloosa Management
Another high profile investor from the USA with a reputation as one of the best investors in the world, Appaloosa Management’s David Tepper has recently said he is again ‘nibbling’ at some of the big tech stocks his portfolio favours.
Alphabet is the biggest single holding in Tepper’s portfolio and he believes Google’s parent company is still a strong prospect. We might be online more than ever before during lockdown, but with over 80% of revenues still generated by ad spend, expected to take a big hit, many analysts were tipping Alphabet’s share price to dive.
However, some analysts now believe the forecast decline in digital advertising of between 20% and 30% could be as little as a 10% dip for Alphabet. And even if revenues do suffer for a few quarters, the company looks like an attractive longer-term prospect.
The company’s quickly growing Google Cloud Platform looks well set up to benefit from the expected acceleration to cloud computing in the post-Covid-19 world. Other units such as self-driving cars technology company Waymo could also be extremely profitable in the future.
With $120 billion in cash, Alphabet will also be in a very strong position to make acquisitions it may have considered too expensive at pre-lockdown asking prices.
Anthony Bolton – Retired Fund Manager
Anthony Bolton is regarded as one of the UK’s most successful stock-picking gurus. Before stepping away from professional investing in 2014 to focus his energies on philanthropy and music, Bolton spent five years as manager of the Fidelity China Special Situations fund. He also ran the Fidelity Special Situations fund from 1979 to 2007.
He recently told the Financial Times he has returned to investing in a personal capacity as a result of the recent drop in valuations:
“I’ve started to invest. I will say to people I think at these prices there are really interesting opportunities.”
Unlike the other professional investors mentioned here, Mr Bolton did not go into which stocks in particular he is investing in. But his reasoning for returning to investing now is also valuable, as is his advice to other investors.
“I wouldn’t necessarily invest all your money at the moment, if you have money to invest — and many people don’t. The key message to investors is don’t get more bearish as the market goes down”.
He thinks there are key differences between now and the 2008-09 financial crisis:
“I think it is slightly different this time. If we do see some sort of rescue for BA, I’ll be very interested to see on what sort of terms it will be.
‘People have to be open to the possibility that it’s not going to be as draconian for shareholders as it was in the global financial crisis.”
Mr Bolton’s thoughts may well be worth taking into consideration. Over his 28 years controlling Fidelity Special Situations, he developed a reputation as one of the most profitable fund managers in the UK. £1,000 invested in the Special Situations fund in December 1979, would have grown by multiple of 147 by December 2007 when he departed.
His approach was to conduct deep research on companies, spread the risk, but also find firms that he thought were undervalued by the stock market.
For those with secure enough finances, now could be a fantastic time to adopt the same approach.
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