Compelling valuations amid the chaos

Published 12 March 2020

News of coronavirus (COVID-19) in recent weeks has contributed to increased market volatility. In this piece, Alex Wright explains how he’s been navigating markets and shares his outlook for the coming months.


Markets have never been as cheap in my 12-year fund management career as they are now. The current environment is producing the sort of investment opportunities not seen since the financial crisis. While investor sentiment towards UK equities had been improving prior to the sell-off, the asset class remains significantly underweight in investors’ portfolios, and is meaningfully undervalued in a global context. 

Looking ahead, we can expect corporate earnings downgrades, reflecting the negative impact of the coronavirus (COVID-19) on company activity and the fall in oil prices on the energy sector. Beyond 2020 though, activity will likely resume, and earnings will recover to normalised levels. What is critical at this time though, is a selective approach, as not all companies are equally good value.

Against this backdrop I have increased gearing from 3% to 12% in the Company, taking advantage of very cheap borrowing costs and a host of attractively valued companies.  

One area, however, in which I have decided to close positions is airlines, as I believe the impact on those businesses will be prolonged and extend beyond the current period of constrained aircraft supply caused by the grounding of the Boeing 737 Max passenger airliners. 

I am also finding opportunities across a broad range of industries, including defensive businesses such as Roche, Sanofi and Mylan in healthcare, ContourGlobal in utilities and DCC and Serco in non-cyclical support services. 

Cyclical stocks I have added to, include life insurers, now a 12% aggregate position in the portfolio, with the likes of Legal & General, Aviva and Phoenix offering high dividend yields and featuring prominently among key positions. 

Another anomalous victim of the recent sell-off I should highlight is buildings material business CRH, a very significant position for the Company. The stock is not only a clear beneficiary of the political desire across the political spectrum in the US - its largest market - for more infrastructure spending, but will also benefit from lower oil prices among its largest cost components. 

Closer to home, I am finding a lot of opportunities among UK domestic businesses, such as housebuilder McCarthy & Stone, which has a 70% market share in the retirement living sector where demand is growing strongly and remains significantly below countries such as Australia and the US. The underperformance of smaller companies has been especially marked, reflecting a general shying away from lower liquidity stocks recently, and this part of the market has proved especially rich in opportunities.

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Important information

The value of investments can go down as well as up and you may not get back the amount you invested. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments are subject to currency fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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