The data shown is not constant over time and the allocation may change in the future. Totals may not sum to 100.0% due to rounding. All data source Allianz Global Investors unless otherwise stated.
Data as of 30.04.2020
Data as of 30.04.2020. Excludes Cash
|Europe ex UK||25.5|
|Pacific ex Japan||5.7|
Data as of 30.04.2020. Excludes Cash
Global equities rebounded sharply in April, with the MSCI All Country World Index returning 10.8%. Slowing infection rates in some of the worst hit countries like Spain and Italy boosted investors’ risk appetites. However, April also saw the US become the country with the highest rate of daily deaths, while economic data and first-quarter earnings reports started to show the extent of COVID-19’s negative impact.
The global economy ground to a standstill as a result of measures taken to limit the spread of COVID-19. Eurozone Gross Domestic Product has contracted 3.8% in Q1, its steepest quarterly decline since records began in 1995. In the US, which only implemented lockdown measures in mid-March, the economy contracted by an annualised 4.8%. In China, which went into lockdown in January and has now mostly eased quarantine restrictions, GDP shrank 6.8%.
At a sector level, Consumer Discretionary stocks gained the most, closely followed by those in the Energy sector, although the latter remains down over 35% year to date. Information Technology stocks also performed well, and the sector is one of the best performers year to date. The relative safe havens of Consumer Staples and Utilities were some of the weakest performing sectors.
It was an extremely volatile month for oil prices. After starting the month on a stronger note, fears of oversupply caused oil prices to fall once more, with the West Texas Intermediate oil price briefly turning negative for the first time in history due to a lack of storage capacity.
The portfolio slightly underperformed its benchmark in April. Not holding Amazon, which rallied strongly following very positive results, proved to be one of the largest detractors. In a concentrated portfolio, we have historically avoided the company in favour of Microsoft, which has faster growth in its cloud computing division, lower execution risks in “non-core” activities like grocery, and a dividend. On the positive side, stock selection in Financials and Basic Materials has boosted performance, as has the portfolio’s overweight allocation to Health Care. Against this backdrop the Trust’s NAV returned 7.6% in April, marginally behind the benchmark return of 7.9%.
Itochu also weakened returns. The Japanese general trading firm revealed that – contrary to its buyback plan – it had not yet repurchased any of its shares despite their substantial decline in line with broader equity markets. This fuelled speculation Itochu was unwilling to return cash to shareholders. However, the company has since reported record full-year profits and said it plans to pay a higher dividend this financial year.
Ecolab has made the largest positive contribution to returns. Shares in the water management and hygiene business had weakened substantially in March, as investors feared the impact of its exposure to hospitality and energy. While these sectors are expected to soften, the remaining food, health care and industrial markets should remain flat or grow. Strong Q1 results further boosted Ecolab’s stock, with revenues and earnings both ahead of consensus.
Microchip Technology has also boosted performance. The maker of microcontrollers and integrated circuits announced that it received record bookings for the March 2020 quarter, although management have indicated that many of these bookings are due to customer stockpiling ahead of COVID-19 supply chain disruptions. As a result, the company is reducing its cost structure with pay cuts to senior staff and non-factory workers. This should enable Microchip to retain full functionality despite softer demand and be well-positioned for a recovery.
Truly unprecedented levels of government and central bank support have prevented a tidal wave of corporate bankruptcies. These interventions have supported equity and credit markets which have held up remarkably well in the face of what is certain to be a very deep recession. The gradual lifting of lockdown restrictions in Asia, as well as some of the earliest affected countries in Europe, and the corresponding return of economic activity has also been a clear positive signal for equity investors.
Notwithstanding these tentative positive signals, the environment remains one of profound uncertainty. Indeed, in the short term we anticipate economic and corporate news flow to remain very challenging, possibly more so than the current market consensus view. In this context, we maintain our strategy of focusing primarily on companies that are exposed to favourable long-term trends, for example the digitalisation of products and professional services which is driving companies such as Microsoft and Accenture. COVID-19 has also shone a spotlight on the benefits of owning stocks with superior Environmental, Social and Governance practices, a belief which has long been part of our investment philosophy.
However, it is important to remember that the virus will eventually pass and when it does the economy and society will return to some semblance of normality. Our long-term investment approach means we are primarily interested in understanding what this post COVID-19 world will look like. Some aspects of daily life will return to normal but other things will have changed permanently. Much of our research effort is now focussed on understanding these questions. Getting these judgements right will be critical to many investment decisions in the months to come.
Our long-term investment approach means we are primarily interested in understanding what this post COVID-19 world will look like
This is no recommendation or solicitation to buy or sell any particular security.
|NAV (debt at fair value)||-13.3||-9.0||-5.7||11.2||38.1|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return to 30.04.2020.1
|NAV (debt at fair value)||-5.7||6.3||10.9||29.5||-4.1|
Source: Thomson Reuters DataStream, percentage growth, mid to mid, total return as at 30.04.2020.1
1Past performance is not a reliable indicator of future returns. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market fluctuations and you may not get back the amount originally invested.This investment trust charges 70% of its annual management fee to the capital account and 30% to revenue. This could lead to a higher level of income but capital growth will be constrained as a result.
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