Reasons to be Cheerful… Part One
Ecommerce is a winner
A message we are hearing repeated everywhere, particularly by CEOs and management teams of the stocks we own, is that ecommerce is the undisputed winner of this crisis. The trend of physical commerce moving online has accelerated rapidly, which is clearly very beneficial for companies with exposure to ecommerce. Amazon (a core Ecommerce Fund holding) has seen its share price rocket to new all-time highs (share price +27% YTD in 2020) on anticipation of greater online orders and delivery demand. Amazon also is among the big 3 cloud computing companies. Amazon’s cloud business benefits from increased internet traffic and – with billions of people now forced to stay home – internet traffic is up significantly.
The Ecommerce Fund also holds a large position in the digital entertainment sector which has performed very well through the COVID-19 crisis. Today close to 20% of the fund is invested in digital entertainment companies (computer games, music streaming). These businesses have benefited from people staying at home and spending more time streaming digitally. EA (computer games developer / publisher) was a recent addition to the Ecommerce Fund in this sector. The company’s stock price is up +30% since we added that position to the fund a few weeks ago.
China’s normalisation is good news for Luxury
People are waking up to the fact that China is going back to normal. China’s slow normalisation offers the Luxury Consumer fund a counterbalance to continued declines in demand in Europe and the US. We decided early during this crisis to tilt the fund to favour companies with exposure to Asia, as it was clear that China would be first to emerge from COVID-19 and start to recover.
We are also seeing that there is clearly pent-up demand for certain goods in the luxury consumer space. Some companies have permanently lost sales to the COVID-19 crisis, such as restaurants that have lost sales which can never be recovered. Companies like LVMH, on the other hand, are seeing that purchases for its luxury goods have largely been delayed, rather than lost. There is a pent-up demand for those products, which will likely translate into an accelerating rate of demand as we enter the recovery.
Taking advantage of the clearly positive trend in ecommerce from the COVID-19 crisis, we recently added a new position in online fashion retailer Boo-Hoo. We see it as a leader in the space and took advantage of the lower share price to add a new position in the Fund. This position is now up +55%.
Alternative energy powers Managed Fund
The Managed Fund has seen fantastic performance from its exposure to the uranium / nuclear power trend. We are invested in this space because we believe that nuclear power will be a critical component in the fight against climate change. Our research shows you cannot solve climate change without a large % of electricity coming from nuclear power (we have published research available upon request). We have played this trend with exposure to a number of stocks that own uranium producing assets (uranium being the fuel used in nuclear power stations). These stocks have been some of the best performing stocks in the stock market through the COVID-19 crisis and in recent weeks. Cameco, our largest position in this trend, is up +8% in 2020 YTD (the S&P 500 is down 14% over the same period). Since the market lows in mid-March, Cameco is up an incredible +76%. And we continue to see considerable upside for the prices of our uranium exposure in 2020. This exposure is generating strong returns for investors and diversifies their market exposure, with positive YTD performance in 2020 despite the worst bear market for equities since 2008-2009.
We took action early to reduce market exposure in the Managed Fund in early February. This left the Fund with the ability to buy into stocks at the recent market lows, many of which have shown significant positive performance: Adidas is up +19.5% (ecommerce purchases of sportswear holding up well during COVID-19), Microsoft +21% (leading provider of work-at-home critical software and cloud solutions), Compass Group +25% (leading outsourcing company in food services). These are great examples of our ability as active managers to take advantage of equity market sell-offs and buy into very high-quality growth stocks at more attractive price points. This lets us benefit from the upside in prices as market sentiment returns to normal.
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