Vaccine Newsflash.... The Implications for the DGT Funds
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Vaccine Newsflash.... The Implications for the DGT Funds

Yesterday, news was released of a high success rate on a trial for a COVID vaccine. Global markets saw big moves on the news. See below commentary from the investment team on the implications for each of the DGT Funds.

It is important to note that the news of the vaccine development is preliminary. We do not know yet if this vaccine will work or be rolled out successfully.

DGT Ecommerce Fund – The Outlook Remains Very Bullish for Ecommerce Stocks

It is reasonable, in light of the vaccine news, to expect some sector rotation away from those stocks that saw their operations unaffected or even enhanced by the response to COVID; namely those with strong digital operations. However, this rotation should be considered a case of non-digital sectors now having a clearer time-horizon for return to normality, rather than digital and ecommerce stocks regressing. The Dominion Global Trends Ecommerce Fund has also prepared for the likelihood of a vaccine announcement and now has 20% of the fund invested in companies that will benefit from a COVID recovery in the economy.

The lockdown measures that COVID required caused a once-in-a-lifetime behavioural shift, a wholescale conversion to the digital world, and this will not reverse either. Ecommerce companies will keep the gains they made in user base, new customers and ecosystems during the pandemic. While people had little choice but to switch to ecommerce and digital services during lockdowns, they are unlikely to abandon them in a post-COVID world. This is because these platforms are sticky by design; offering better choice, utility and value than their real-world counter parts. We have already observed this phenomenon in China, an economy already operating on a post COVID basis, where the likes of Alibaba are still reporting revenue growth in excess of +30%. So, while COVID may have resulted in years of ecommerce sector growth happening in just a few months, that growth does not stop here, but keeps on going, driven by the global ecommerce megatrend.

DGT Managed Fund – The Recovery Trade Kicks Into-Gear…

The Managed Fund is our diversified, multi-sector and multi-theme fund. As such, we have positioned the Fund to benefit from any ‘COVID recovery trade’ in 2020. Despite the pandemic worsening, we continued to maintain an optimistic view that eventually good news on COVID vaccines / treatments would come and that would result in a strong recovery in share prices for businesses with exposure to COVID 19 disruptions. The announcement yesterday of successful trial results in a COVID vaccine resulted in a +3% increase in the value of the Managed Fund, one of the Fund’s best days in its history, with strong moves up in the stocks we had positioned for ‘good news’ on the recovery from COVID.

Back in February we took action early to close positions exposed to travel, the airline industry, live entertainment and physical retail. That was the right decision as those sectors saw big negative share price moves in the subsequent weeks into the March equity market lows. In March and through the rest of the year, we rebuilt some of these positions, taking advantage of the depressed share prices in high quality businesses where we saw opportunity to build a ‘COVID recovery’ basket, in anticipation of a bounce in those stock prices when good news inevitably arrived on treatments / vaccines. Names like AerCap (owner of commercial aircraft) traded up +32% yesterday, Compass Group (catering) +19% yesterday, Amadeus (software used in air travel) +15% yesterday.

While some of the more ecommerce & technology focused names in the portfolio saw weaker performance yesterday and may see similar moves down in the coming days, we see this as a great opportunity to ‘buy the dip’ in these stocks. The long-term growth story in these companies remains unchanged, and short-term sector rotations in / out of stocks simply offers us, as long-term investors, an opportunity to buy more of these high quality businesses at a discount.

As active managers, this year has been defined by dramatic moves up and down in markets, and we’ve successfully taken advantage of these moves to generate returns for our investors. With news of Biden winning the US election, a successful COVID vaccine now potentially on its way, and more COVID vaccine / treatment approvals likely to come, the set-up for equities into the end of 2020 and 2021 is bullish. Now, we believe, is a great time to look at adding positions to the DGT Managed Fund and continue to benefit from our successful actively management investment strategy.

DGT Luxury Consumer – Well Placed to Invest in the COVID Recovery

News of a potentially viable (alleged 90% effective against infection) vaccine from Pfizer that may be available by the start of 2021 resulted in strong performance yesterday on the Luxury Consumer Portfolio which rose +2% and is now up almost +10% from the start November to a new historic high.

Equity markets always look forward and yesterday’s news means that an earlier than anticipated recovery from COVID for the luxury goods sector could be priced in by markets. What was particularly pleasing was to see some overlooked stocks in the Fund perform well yesterday. A good example is Inditex which had been penalized for its Euro-centric exposure to COVID’s 2nd wave. It rose +12% yesterday. Nursery education group Bright Horizons, which the day before had been marked down on COVID concerns, saw its share price move up to historic highs as investors now believe enrolment will accelerate faster than anticipated.

While the road out of COVID is unlikely to be easy, the stocks we invest in through the Luxury Consumer Fund were already adapting their businesses to the pandemic. Many were already beginning to fire on multiple structural growth cylinders (China recovery, Ecommerce, growing inequality, women’s equality, demographic change and ageing population trends). Yesterday’s announcement will further boost the performance of these stocks.

The pandemic had eclipsed some structural trends like leisure, travel and mobility. A vaccine may see these trends shine once again. If so, the Luxury Consumer Fund is well placed to invest in them and realise strong long-term returns from their recoveries.

Important Information

This material is issued by Dominion Asset Management Limited which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number: 582924. The document is for distribution to Professional Clients and Professional Advisors only and should not be relied upon by any other persons.
The document is for information purposes only and does not constitute an offer or invitation to anyone to invest in Dominion Group funds. Any views expressed do not constitute investment or any other advice and are subject to change.

Any research in this document has been procured by Dominion Asset Management Limited from various sources and do not necessarily reflect the views of any company in Dominion Group and Dominion Asset Management Limited assume no responsibility for any errors or omissions.
The value of investments and the income from them can fall as well as rise and returns are not guaranteed.

You may not get back the amount originally invested. Past performance is not a reliable indicator for future results

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