Longevity Economy strategy - Strategy outperformed benchmark, driven by strength across all sub-themes
- Supportive government and central bank policies helped global equity markets partially recover
- Market uncertainty is creating some strong investment opportunities
- Strategy outperformed its benchmark, driven by positive results across all four sub-themes
Global equity markets partially bounced back from the fall seen in March as central banks and governments globally committed to new policies to soften the negative economic impact of the COVID-19 pandemic. During the month China, some US states and European countries eased some restrictions on citizens’ movements, potentially signalling the start of a recovery in levels of economic activity.
Companies have begun reporting earnings for the first quarter of 2020 and in general the results correlate with the timing and severity of social distancing measures in different regions. Demand generally weakened first in Asian markets, followed by European and North American markets. As a result of the disruption many companies have withdrawn their financial guidance for 2020 and the range of estimates from sell side research analysts has widened, both of which increase uncertainty around expectations for financial performance. To us greater uncertainty creates an opportunity for fundamental analysis to cut through the market noise and find remarkable companies at remarkable prices. We have been working actively to incorporate new information into our models while keeping our focus on long-term fundamental value.
Portfolio positioning and performance
The Longevity strategy continued its strong performance from March by outperforming its benchmark. Positive performance was driven by holdings across all four subthemes of Longevity: Treatment, Wellness, Silver Spending and Senior Care. Our holdings in pharmaceutical companies performed well, including AstraZeneca and Takeda. It is a fact that as we age, on average, we consume more healthcare such as prescription drugs. Pharma companies developing drugs focusing on diseases with a higher prevalence in older populations are poised to benefit from ageing populations and as these new drugs come to market and drive up the standard of care, this can help reduce the burden of care on healthcare systems.
Similarly, our holdings in financial planning companies, such as Julius Baer and St. James’s Place contributed positively to performance as they partially bounced back from the volatility experienced in March. As global populations age and many live longer than predicted, ensuring a person’s financial resources can meet their spending needs becomes ever more important. As a result, we believe financial planning and wealth management providers will see longer term increases in demand for their services. This long-term view means we are not overly concerned about recent short-term movements and we took advantage of the recent volatility to add selectively to our exposure in this space.
However, beauty and chemical company, Kao Corp and contact lens provider, Cooper companies, both of which are exposed to the beauty and vision subtheme of silver spending, were marginally weaker in April. Kao is primarily exposed to the Japanese market, which only more recently moved to increase restrictions on citizen’s movements, which is likely to reduce sales of beauty products as we have seen in other geographies. For Cooper, social distancing measures have led to a significant reduction in optician appointments, thereby reducing demand for contact lenses and similar products.
During the month we closed our position in Adidas, while we believe the company is well-positioned to benefit from increasing consumer interest in whole of life fitness, consensus expectations for the company’s performance over the balance of 2020 do not seem to fairly reflect the likely economic impact of continued social distancing policies in many countries. We closed our positions in Zimmer Biomet and Tandem Diabetes for similar reasons.
Coronavirus and the global response to the health emergency are likely to negatively impact the global economy in the short term. Efforts to slow the spread of the virus, such as the closing of country borders and quarantines in affected areas will likely depress economic activity across multiple sectors.
The pace of development and extent of collaboration seen in the biopharma sector during the COVID-19 pandemic is inspiring. At the end of April, Gilead reported positive data for its antiviral drug, remdesivir, in reducing the severity of symptoms of COVID-19 and after the period under review the drug was approved for use in the US. The first approved therapy for COVID-19 is a big breakthrough and there are hundreds of potential vaccines and treatments now being tested to treat the disease. This gives us confidence that the standard of care for this infection will continue to increase over the next year, which is an important step to allowing countries to reopen economies without a significant increase in deaths from COVID-19. Testing for presence of the disease is another key concern and it is positive to see testing capacity rapidly increasing globally, with highly accurate antibody tests starting to come to market. However, despite all the recent progress, it is important to appreciate that the virus remains prevalent and there is a high risk of a resurgence as social distancing measures are relaxed.
A rapid short-term increase in unemployment in countries that have enacted strict social distancing policies is to be expected. However, the unprecedent monetary and fiscal response from central banks and policymakers in many developed markets may cushion the negative economic impacts of the virus outbreak and provides reasons for optimism in the ability for economic activity to rebound.
The unshakeable conclusion of the outlook for the Longevity Economy is that the global population continues to age and this creates opportunities for companies that are positioned to benefit from long-term changes in consumption patterns that ageing populations could bring.
No assurance can be given that the Longevity Economy Strategy will be successful. Investors can lose some or all of their capital invested. The Longevity Economy Strategy is subject to risks including: Equity; Currency; Global Investments; Emerging markets; Investments in small capitalisation universe and Investment in specific asset classes.
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