When Britain closed in March, it seemed like a disaster for investors. But winners and losers quickly emerged from the economic rubble.
For example, grocery stores and technology stocks boomed when people worked and ate at home. But shares in airlines and tour operators collapsed.
So is there any indication to investors chasing the next batch of winners as we enter the second and – so far at least – lighter UK lockdown?
Color of Money: The DIY boom during lockdown helped sales at companies like B&Q owner Kingfisher
Richard Hunter, head of markets at online stock broker Interactive Investor, says: “The dangers are clear and the odds may be less clear than you would hope under these latest restrictions.
“It will be interesting to see if the new ‘mini lockdown’ results in a diluted version of the success that stocks that performed strongly everywhere have seen – but it is not guaranteed.”
Jason Hollands, of broker Tilney Investments, says, “Many items that were in high demand during the original lockdown, such as bicycles and laptops, are unlikely to see a repeat based on this latest news.”
But, he adds, restrictions on pubs and the hospitality industry could lead to an increase in home consumption – just as before. “Much of this will come through supermarkets, where there are already signs of panic buying of certain items,” he says.
SPEND MORE TIME IN THE GARDEN
Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, says B&Q owner Kingfisher could be another big winner as office workers are again being asked to work from home. It enjoyed a terrific initial lockdown: Last week, the company said the DIY boom was so strong that it returned £ 23 million of the leave money the government needed to survive.
Sales at the group – which also owns Screwfix and Castorama and Brico Depot in France – were 4 percent higher than in 2019 for the six months to July 31, as more time at home led to a spike in improving their gardens and houses. Profits were up more than 47 percent thanks to the lower corporate rates and other savings.
Streeter says: “In addition to the surge in home improvements, Kingfisher has shown it is well positioned for the consumer shift to online with click & collect, accounting for more than 90 percent of the group’s digital orders.
The coronavirus crisis appears to have triggered the turnaround that escaped Kingfisher management at the beginning of the year, as handling a brush appears to have become a national pastime – and in most of the group’s other markets as well. .
“The challenge is to make sure that the company can maintain higher online sales even as the lockdown DIY trend abates.”
BACK TO HOME FOOD AND DRINK
A hallmark of the latest lockdown was an increase in drinking at home. Now the 10pm curfew and restrictions on mixing with others in bars could see another spike in wine and beer sales.
That – along with the likely surge in online delivery orders as Christmas approaches – should be good news for supermarket chains, many of which are listed on the stock market.
Major funds investing in supermarkets include Artemis Income, which has invested £ 4.30 of every £ 100 of investor cash in Tesco, and Threadneedle UK Income, which has £ 4.20 of every £ 100 invested in Morrisons Supermarkets.
Takeaway companies can also shine. Hollands says that Domino’s Pizza, one of the few UK-listed takeaway delivery companies, might come on a bright note. “Sales in the first half year were 4.8 percent higher this year than in 2019, despite the in-store collection option being disabled during the lockdown period,” he says.
Notable shareholders include the Liontrust Special Situations fund, where £ 2.46 of every £ 100 you bring in is invested in Domino’s; Trojan Income (£ 2.49 per £ 100 you invest); and the Smithson Investment Trust (£ 6.25 per £ 100).
Ben Yearsley, a director of Shore Financial Planning, agrees Domino’s can benefit. He also cites Ocado – which has had a great start in M&S food delivery – and the popular Just Eat takeout app as businesses well positioned to make money as the 10pm curfew hits restaurant bookings.
The Baillie Gifford UK Equity Alpha fund has Ocado as the largest holding of £ 8 for every £ 100 you invest in the fund. Also in the top ten investments is Asos, which could benefit if stricter lockdown measures lead to shopping abandonment and more people buying winter clothing online. JO Hambro UK Dynamic also has Morrisons and Tesco in the top ten stocks, as well as Vodafone, which Yearsley thinks can hold up well too. “ You could argue that gambling stocks like William Hill could do well as sports are still going on and there isn’t much else to do, some might go gambling for entertainment, ” he adds.
STOCK ON CLEANING ESSENTIALS
As the virus becomes more prevalent, families who may have started to relax in everyday life will take extra precautions. This may mean stocking up on cleaning products and medicines.
Shares in Reckitt Benckiser, which makes Dettol, Harpic and Cillit Bang among other well-known household products, are up 22 percent so far this year.
Streeter, at Hargreaves Lansdown, says discount retailer B&M is also likely to benefit. It is an excellent candidate for stocking families because it sells all kinds of household supplies – dishwasher tablets, rubber gloves, face masks, inexpensive duvet sets and kitchen utensils – often at lower prices than the major supermarkets. Streeter says, “Consumers fearful of another full lockdown can start stocking up on essentials to avoid the shortages we saw last time.
“Now that people are also concerned about their income, B&M should benefit as a value retailer, as consumers often trade for more expensive supermarkets in difficult times.”
TIME FOR A ‘FLIGHT TO SAFETY’?
With more uncertainty ahead, a trend that could return is a so-called ‘flight to safety’. This usually means buying gold and so-called defensive stocks.
Investors turn to gold when they are concerned about broader stock markets. Likewise, companies whose products are in demand in both bad and good times are classified as ‘defensive’ investments and become popular in times of fear.
The Covid-19 crisis was no exception: the stock price of prospector Fresnillo, for example, doubled in 2020. Richard Hunter, of Interactive Investor, says, “Any further rise in the price of the precious metal may bode well for Fresnillo’s outlook.”
Another tremendous increase is due to the gold mining company Petropavlovsk, where the stock price has risen 166 percent in the year so far.
Emma Wall, head of investment analysis at Hargreaves Lansdown, says: “As we enter even more economic uncertainty, it is a wise choice to support companies with strong balance sheets and global revenues. For investors who are more cautious about the outlook for the stock markets – and rightly so given the coronavirus, Brexit and the US election – a mixed asset fund will hedge your bets. ‘
She lists both Troy Trojan, which is up 7.4 percent this year, and Pyrford Global Total Return, which is down 0.3 percent this year. Both funds invest in a combination of stocks, bonds, cash and gold. “The fund managers prioritize keeping your capital over and out of growth,” says Wall. Of the two, she says Pyrford is more careful.
ANOTHER BOOST FOR GLOBAL TECHNICAL GIANTS
Stock market analysts began to wonder if the skyrocketing stock prices for US tech giants like Amazon, Microsoft, Apple and Facebook might have happened. These companies were among Covid’s biggest winners, as companies had to adapt to remote working and friends and family have used technology to keep in touch.
But with the latest lockdown measures set to take another six months – and possibly more stringent ones to come – these companies could get another boost.
Richard Hunter points to the Scottish Mortgage Investment Trust as a way to monetize this trend. It’s up 66 percent in the year to date, turning £ 10,000 into £ 16,600 – largely thanks to its exposure to US technology stocks.
The largest holding is electric car company Tesla, which accounts for £ 12.67 of every £ 100 in the fund. Next on the list is Amazon, which is good for £ 9.37 out of every £ 100, followed by Chinese tech giant Tencent, at £ 6.09 for every £ 100 invested.
The F&C Investment Trust is a major technology financier. It is 150 years old, but has a very modern investment portfolio that includes a fifth of its assets in technology companies.
Amazon, Microsoft, Apple, Facebook, Alphabet and Alibaba are all in the top ten. And it’s global, with four-fifths of its assets spread outside the UK, across a variety of sectors.
In the UK, Alexandra Jackson, Rathbones UK Opportunities Manager, positions her portfolio for ‘stay-at-home winners such as video games, online retail, warehousing, fraud prevention, remote communication and sporty casual wear’ and gives Grafton and Marshalls tips on home improvements, AIM- listed Breedon for construction, IT business Kainos and storage company Segro.
It’s also important to think beyond the second wave, she says. “We increase exposure to companies that can thrive during rolling lockdowns.”
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