Our columnist explains how his ‘forever fund’ has exposure to most of the Covid-19 winners tipped by Terry Smith.
Investment guru Terry Smith has named 10 trends that will benefit from Covid-19, while most sectors suffer. It is an ill wind that blows no good and this DIY investor is delighted to see my modest portfolio gives exposure to most of the winners tipped by the respected fund manager.
Towards the end of his new book, Investing for Growth (published by Harriman House), the founder of the £26 billion asset manager Fundsmith, points out:
“Looking back, it seems that crises, including pandemics, accelerate some existing economic trends.”
Looking forward, he identifies Covid-19 beneficiaries as:
1. Working from home (WFM) and remote working
3. Digital payments
4. Food delivery
5. Home cooking
6. Social media
8. Online schooling
The self-descriptive Polar Capital Technology (LSE:PCT) and Worldwide Healthcare (LSE:WWH) - both top 10 holdings by value in my ‘forever fund’, plus the Continental warehouse-owner Aberdeen Standard European Logistics (LSE:ASLI) give broad exposure to WFH, e-commerce and automation, among others.
McDonald’s (NYSE: MCD) and Nestlé (SIX:NESN), also top 10 holdings in the forever fund, give more focused access to food delivery and - perhaps the most surprising of Smith’s Covid-winner picks - pets. Nestlé’s 'Purina' brand is a big winner as more people spend more time and money at home with cats and dogs who rank higher in many household budget priorities than you might expect.
Less happily, Smith adds: “Of course, it’s not all good news. Air travel is an obvious victim and discount air travel especially so.
“The hospitality industry will struggle. Most restaurants were barely viable before social distancing. Real estate business providing offices or shopping malls is challenged.
“Manufacturers in sectors ranging from fast fashion to the motor industry who have relied upon global supply chains for ‘just in time’ supply of goods and components may now need to shorten those supply lines and hold stock ‘just in case’.
“As Rick Mears, the driver who won the Indianapolis 500 race four times said: ‘In order to finish first, you must first finish.’ There is no point driving so fast that you crash.”
Fundsmith’s long-term investment performance normally does the talking, but neither of its two investment trusts are close to the top of their respective sectors at present.
Smithson Investment Trust (LSE:SSON), a £1.95 billion trust launched in November 2018, currently ranks third out of five in the Association of Investment Companies (AIC) Global Smaller Companies sector with a one-year return of 23%. That lags behind Herald (LSE:HRI) with 32% and Edinburgh Worldwide (LSE:EWI) with 61%.
Fundsmith Emerging Equities (LSE:FEET), a £358 million trust launched in 2014, has underperformed the AIC’s Global Emerging Markets sector over the last year and five years with returns of 1.8% and 26% respectively. Its underperformance may present a buying opportunity for bargain-hunters, with its discount standing at 10%.
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SSON is ruled out for me because its most valuable holding is Fevertree Drinks (LSE:FEVR), where I invested several years earlier and already have sufficient exposure in my forever fund’s top 10.
FEET is more tempting with Foshan Haitian, the Chinese producer of soy sauce, ranking as the top holding; followed by Mercadolibra, the Argentine e-commerce platform; and Vitasoy (SEHK:345), the Hong Kong-based soft drinks maker.
Anyone tempted to put the boot into FEET should beware Smith might kick back. He is well-qualified to do so, with an impressive long-term track record with Fundsmith Equity, which has just marked its 10th anniversary. Over the past 10 years the fund has returned 415% versus 139% for the average Investment Association global fund, according to FE Analytics.
Similarly, he gives short shrift to speculators attempting to profit from volatility. Smith says:
“When it comes to so-called market timing, there are only two sorts of people; those who can’t do it and those who know they can’t do it. It’s safer and more profitable to be in the latter camp.”
Words of wisdom from one of the last 'star' fund managers still left standing in these troubling times.
Ian Cowie owns shares in Aberdeen Standard European Logistics Income (ASLI); McDonald’s (MCD), Nestle (NESN); Polar Capital Technology (PCT) and Worldwide Healthcare (WWH) as part of a diversified portfolio.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
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