CIOs and fund managers keep their cool as renewed Covid restrictions bite

Travel bans and lockdown restrictions are back in play as omicron variant sends shockwaves across the globe, but how likely are they to affect fund managers’ investment strategies?

Germany, Slovakia and Austria took the world by surprise when they emerged as the first European countries to reimpose Covid-19 lockdowns two weeks ago.

But the discovery that the heavily mutated omicron strain has spread from South America to Canada, Europe and Australia, merely days after it was identified in South Africa on 24 November, prompted rapid action from many nations.

Several countries, including the UK and the US, introduced travel restrictions from southern African countries bordering the Gauteng province, where the variant has rapidly become the dominant Covid-19 strain. Israel and Japan, meanwhile, have banned all foreign visitors.

This instigated an equity selloff on Friday (26 November), the biggest since February according to Bloomberg, and caused the Vix to jump by more than 50%. 

TAM Asset Management’s chief investment officer, James Penny, is not concerned about these moves, as he said the Vix hike is not necessarily different from the summer selloff, sparked by panic over the newly identified delta variant.

In a written statement, Penny said the Vix spike was ‘indeed eye-popping’ but seemed related to the overall 2021 narrative of strong markets with short, sharp bouts of extreme volatility. He said there is a ‘buy the dip’ mentality that also emerges.

Where this variant differs from previous ones, is the fact central banks are further along the monetary tightening path and inflation is more permanent than initially expected. Rate hike expectations could have a knock-on effect for those looking for entry points, Penny said.

Despite the uncertainty surrounding the new Covid-19 variant, he said, there remains a strong Tina (there is no alternative) mentality around buying equities. 

‘We don’t believe the arrival of a Covid-19 strain which may or may not be more virulent will be enough to derail this Tina theme into Christmas. 

‘Conversely the selloff on Friday and slow-ish recovery from the market today has let some of the air out of the blistering stock market rally which, we would argue, sets up December into January in a more positive light for investors to maintain their equity positions,’ Penny said.

Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said, while global restrictions put a large amount of downside risk on near-term growth, the long-term implications should be quite small.

For this reason, his team has decided to await confirmation of a long-lasting impact on corporate profits or liquidity before making any changes to their strategy.

‘We are investing in facts, not fiction’

Despite being one of the Europeans faced with new restrictions, European equity veteran Thorsten Winkelmann (pictured above) is not letting the disheartening news affect his gut instinct.

Winkelmann, who is CIO for global growth at Allianz Global Investors, told Citywire Selector that his team’s investee companies, chosen on account of their structural growth, business model, high quality and pricing power, typically enjoy their strengths most when the world is turning more shaky.

‘The current wave of Covid and potential lockdowns will again be the live test if our companies are as flexible and strong as we analysed,’ said the Citywire AA-rated fund manager.

The Allianz Global Equity Growth fund, which Winkelmann runs, is a long-term strategy with a portfolio turnover of below 20% over the past two years. Winkelmann has no plans to change his strategy due to short-term events, but he is open to valuation opportunities.

‘We are investing in facts, not fiction. If the equity market is going crazy on potential implications from lockdowns and Covid, which will lead to higher volatility, then you will find us using that opportunity to amend the portfolio, mostly based on a valuation opportunity.’

Renewed Covid restrictions are likely to affect bricks-and-mortar retailers and travel and leisure companies to some extent, Winkelmann said. However, the severe blows of the past are unlikely to be repeated as several companies from the sector have rolled out digital platforms. 

Profitting from winners

Roberto Magnatantini, lead portfolio manager of Decalia’s Silver Generation and Eternity funds, told Citywire Selector that his strategies would take omicron into account should the strain significantly change the current situation.

New cases are spiking, but the number of hospitalisations and mortality ratios remain well below previous waves due to vaccination rollouts and a high degree of younger age groups among the infected, Magnatantini said.

‘The problem is that political decisions may be overly prudent after the shocking death tolls of the previous waves. Austria going in total lockdown clearly sent jitters across Europe.

‘Nevertheless, we doubt that we will go through lockdowns as severe as in the past unless the new mutations emerging provoke a new wind of panic, not only because mortality has fallen dramatically but also to avoid excessive social unrest,’ said Magnatantini.

Magnatantini has spent the past months reducing exposure to obvious Covid winners - laboratories, life sciences, and home delivery, but he remains cautious on tourism.

‘New regulations need to be harmonised across countries and a climate of prudence will have lasting effects on demand,’ he said.

However, he is not planning to reposition his fund in light of the tumultuous events. Instead, he echoed a larger investor consensus; that the lockdown lifestyle, from home deliveries to outdoor leisure, ties into the same strong secular trends that investors are chasing even when times are good. 

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