Diary of a Fund Manager

Thursday, 21st May 2020

Written by David Miller, Investment Director – Quilter Cheviot

In this week’s Diary, a few themes to hold onto during the grand reopening and news from the advertising front line. Also, what captures the attention of virtual audiences and a bit about books.

It was an interesting week despite the lack of clear trends. Equities turned lower, the US dollar and gold were strong at the same time as was oil. Soon to be redeemed US and UK government bond markets teetered on the brink of negative rates. Politics, philosophy and economics clashed in various places whether related to impending elections, US/China trade, Brexit, government and central bank financial support, healthcare or the mechanics of re-opening the world. We may wish for a low infection rate, economic recovery and personal liberty, but as usual we can’t have our ‘cake and eat it’.

Those who analyse economies are starting to sound more confident about their relevance as the restarts take effect. The decline in growth over the last few months has been beyond comprehension, but now evidence of recovery in China is coming through and this can be extrapolated elsewhere.

Some countries are doing better than others when it comes to opening for business. Denmark is a month into trying and is now allowing shops, restaurants and schools to reopen. Germany is implementing the policy of test, track and reopen if the results are satisfactory. Keeping it local seems to be working.

Elsewhere the spectrum of confusion is wide with policies in Brazil and Russia troubling, and in the US and UK, mixed. As we go back to work, economic growth will pick up sharply. On a country by country basis declines of 30-40% over the last few months may be followed by double digit bounces, but in aggregate we will still end up below where we started. Beyond the next few months, and assuming that there isn’t a second wave of infection, no one is forecasting anything other than a long period of hard graft as we work through past excesses and position ourselves for the future.

The temptation to generalise is hard to resist and so I won’t. A few themes are emerging from this crisis.

  • The big will get bigger with financial strength at a premium.
  • Having accelerated in recent months, change driven by technology will not reverse.
  • Consumers, a beacon of stability in previous recessions, will remain cautious, while manufacturing, which was always the whipping boy in the past, will re-tool and lead the recovery.
  • For the foreseeable future the rules of government finance have changed. Printing and spending without adverse consequences seems to have become the new normal. However, the weak will not inherit the Earth.

Fund management in home isolation continues with opportunities to gather information and insights ever more plentiful than in the past. Companies wishing to contact investors can now start and finish a roadshow in a couple of days as opposed to a week in Europe and then over to the US for another slog up and down Wall Street before heading to the airport.

S4 Capital, the advertising agency set up by Sir Martin Sorrell after he left WPP, is a good example of this and one I have written about before. The investor meeting last week contained a rich diet of news from the front line of commerce; advertisers continue to spend albeit the mix is different to the past, the major technology companies are increasingly dominant and a V-shaped recovery is possible, but only on a sector specific basis. Some of the declines seen will never be reversed –publications moving online and streaming, not conventional television, by way of example. Businesses have taken precautionary action to cut costs and expensive office leaseholds are seen as increasingly unnecessary. Advertising, like investment, can and should go with the flow of change and so are good windows on our new world.

One to one telephone calls have been part of our daily lives for a hundred years or more, but one to ten meetings, let alone one to many have remained face to face. Not anymore. Steadily we are getting used to conference calls whether audio, which avoids the need to look smart, or video. Feedback is harder to gather than when all are in the same room, but possible. Presenting ideas to larger audiences is, however, like talking into a void, no murmurs of agreement, no yawns visible in the backrow and no prompts to ‘cut to the chase’ as the exit doors start to see heavy use. Time is of the essence as is precision of language.

Charts showing the past which were a presentation staple no longer mean much because they either point up or down a lot or because they show comparisons with the pre-virus past that are no longer relevant. Increasingly, it is clear that what audiences were prepared to tolerate when together is no longer as compelling. For example, viewer statistics for American Idol are down 25% compared to last year as entrants sing their heart out in isolation. Sports events may experience something similar as the superstars do their stuff in silent stadiums.

As a reader there is always a pile of books waiting when I have a moment. One thing I have noticed is that the reviewers now seem to have read the books that they have been employed to review rather than just the beginning, end and the publisher’s synopsis. Long may this continue. Also, it is not just the recently published that are receiving attention. Quality from the past, whether Trollope or Tolstoy, beckon to those with a bit more time. For the record, I am reading The Handmaid’s Tale at the moment which despite being written in 1985 resonates with several elements of our dystopian present.


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