A long watch. 

In the first of our Hot Topic virtual events, we asked three fund managers from three different equity asset classes to share their stories of investing in a post-lockdown world.  

Our moderator, Mark Dampier, research director at Hargreaves Lansdown, asked each to outline how they were investing differently, particularly with regard to passive alternatives.  

Laurence Taylor, vice president at T. Rowe International, and portfolio manager on its Global Focused Growth Equity Fund, spoke first, stressing his teams caution on the sustainability of the current equity rally.  

From a global perspective, he outlines the real benefit of a fund manager recognising what he sees as a clear a bifurcated split between growth and value. 

He explains: “The areas that we see as having more legs are in that cyclical piece. Not deep commodities cyclicals, not energy, but trying to find individual companies where if the economy does improve – what the market has priced and what we still believe – those companies can see their earnings expand.” 

Taking profits 

An investor in the UK small-cap market – an asset class even harder to track with passive funds – Ken Wotton, managing director public equity at Gresham House, also highlights bifurcation, but of a different kind.  

“We’ve seen some companies in technology and certain areas of healthcare that have gone back and surpassed their pre-Covid peak, and others in the more short-term impacted sectors which are still significantly down from where they were earlier in the year,” he explains.   

“So we’ve been trying to take profits out of now more expensively rated tech and healthcare and recycle that into areas, such as leisure, where in a normal economic environment that’s less cyclically exposed there’s interesting opportunities because you are able to buy those stocks on very low recovery multiples”.  

Challenge and intrigue 

The macro picture understandably plays a big part in how most active managers assess opportunity. Graham Clapp, part of RWC Partners’ European equity team, focusses much of his team’s process on changing demand drivers for companies across various industries. 

“The challenge and the intrigue now is what does 2021/22 look like in terms of demand for companies,” he explains. 

“The answer is going to be very different for different industries. The demand for some areas like food delivery for example will presumably be quite a bit higher than it would have been, while in other areas such as airlines it’s clear that air travel is going to be down for quite a long time to come.  

“What we are looking for is what the likely medium and long-term macro environment is for that company so we can overlay that with what we think the company is doing strategically and tactically on their own behalf”.