DIARY OF A FUND MANAGER - MISSING OLYMPICS 13.07.20

In this week’s Diary what we have to look forward to during the rest of July, encouraging news as Europe reopens and how the business of sport is coping with the new world. And for those disappointed by the postponement of the Olympics Games, a memory from 1972.

Even though financial markets thrive on information, whether real or imaginary, sometimes a holding pattern develops as we wait for something important to turn up. Last week was one of those with equities mixed, bonds and gold slightly higher, and the US dollar down. Virus infection rates, particularly in America, preoccupied those hoping for the best or fearing the worst. The approaching quarterly results season will matter. Investors have been guided to the right numbers, but there is always room for a few surprises.
The non-virus news that did emerge was helpful with Europe providing evidence of what we do when we are allowed out. France and Germany seem to be doing better than predicted with certain sectors almost back to normal. For example, French agriculture, energy, telecommunications and, of course, the extensive public sector, are making good progress, along with food, property and information technology. In Germany the news is also good as borrowing to spend becomes acceptable. Overall, EU economic growth remains uninspiring, but at least there is a plan for dealing with the virus.
In the UK the Chancellor did his best rolling out plans to inject the equivalent of 1% of GDP into the economy. Unfortunately, previous stimulus packages that are due to expire by year end represent the equivalent of 7% of 2019 economic activity. Unemployment looks set to rise and this is bound to have an effect on consumer confidence. With Brexit uncertainty it is easy to see why international investors are attentive but wary.
Conversations with those who own or manage UK properties were very much feast or famine with the sector average of little use. Tenants with the right sort of business, those backed by the government or those that have become integral in the new world like warehouses for online logistics are paying rents more or less as normal.
In contrast, retail and leisure remains a war zone with landlords oscillating between sympathy and exasperation. The repurposing of redundant space will become an expensive priority. This will put even more strain on pension funds already struggling with the effects of low or even negative interest rates. If companies need to inject further capital to fulfil their commitment to pensioners then this will be at the expenses of investment and jobs.
A recurring question is whether US equities and, technology companies in particular, are overpriced? Generalisations are of little use, but one report last week caught my attention. Credit ratings are mostly used by bond rather than equity investors, but an analysis of US equity performance this year dividing the market by the credit rating of the companies bonds drove home the importance of balance sheet strength at times of trouble. Those with a good credit rating are flat year to date, whilst those rated B or below are down by over a third. Quality is worth paying a premium for at times like this.
Sport has been devastated by the lockdown and continuing concerns about how to stay safe. Mass gatherings are a long way off, but some events have tentatively emerged from hibernation. The Tokyo 2020 Olympics, due to start in just a few weeks’ time has, however, been postponed for a year, which is very disappointing for fans like me. World records are there to be broken at any time, but there is something special about being the best in the world on an arbitrary day every four years. Talent and preparation are vital, but then it comes down to mind over matter. Having met several Olympic champions over the years I can’t say that there are any obvious common characteristics, but they did it when it mattered and so deserve huge credit.
My Olympic memories stretch back, just about, to Tokyo 1964 and so it is impossible to select a favourite winner. However, one of the benefits of the internet is that it is simple to search for memorable moments. If you have time, do watch the 1972 men’s 800 metre final when Dave Wottle in a golf cap did something extraordinary. Then again, perhaps the future will be different and we will find other things to get excited about. That 57% of British boys aged 16-19 play video games each week, whilst only 28% watch sport could be the shape of things to come. Online spectators watching the world’s best online gamers is undoubtedly a safe activity.

Written by

David Miller
Investment Director

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