“Goodnight Moon, Goodnight Zoom, Goodnight Sense of Impending Doom”
30 September 2020
30 September 2020
Our Investment Manager Charles Astor outlines the decisions taken by Henderson Rowe in 2020, which turned a potential annus horribilis into a positive, both for the firm and its investors.
Goes the lullaby of today. It’s time to move on and get back to normal life with schools reopening and many employees returning to work after an unusual summer. The sad truth is that COVID-19 remains and its economic impact has been significant and should not be underestimated.
For many of us, the financial crisis in 2008 seems a thing of the distant past but we must not forget the emotional scars which investors had to face in the following years. The stock market took five years to recover with stock prices rising faster than earnings; thus creating an asset bubble in 2013. Some experts say that there are similarities between the 2008 crisis and COVID-19, and given the current state of affairs in the global economy, we recognise that investors are worried about the impact on their investments as well as pandemic fears. At Henderson Rowe, we have not just been observing the market movement from a distance, we have also been proactively dealing with the impact caused by COVID-19.
Like many organisations, Henderson Rowe’s employees have been working from home since the beginning of the pandemic in order to protect their well-being and we have seen many unexpected benefits to this. It offers them greater flexibility which allows many to strike a work-life balance, especially those who have children of school-age. Also, thanks to digital technology, our employees have been able to communicate and continue to service our clients using Zoom. We value the opportunity to keep in touch with our clients during the difficult period.
In April, during the initial COVID-19 equity sell off, we rotated our discretionary accounts into new stocks that scored highly in value and quality factors to take advantage of opportunities created by COVID-19. These decisions have proven to be very prudent for our discretionary clients and were achieved in two ways. Firstly, by taking profits in industries that were spared in the first-wave hit to the global economy, such as pharmaceuticals or gold mining companies – and redeploying that capital into sectors where share prices presented bargains. Secondly, we rotated at the factor level, moving away from growth and sentiment – which typically perform better in rising markets – and into value and quality stocks, which are stalwarts in a bear market.
The success of this rotation was due to the combination of value and quality. Ensuring that our value stocks have solid quality characteristics, including a strong financial position, is critical to identifying stocks that are being unfairly punished by a market in full-on panic mode, but have the fundamental strength to make it out the other side. Stocks with the strongest position going into the crisis won’t just survive it, they’ll actually flourish because of the damage done to their less robust competitors. This neatly encapsulates the tech rally we’ve witnessed since April, where a handful of hugely cash rich tech giants drove the U.S. market recovery.
COVID-19 has not put a stop to our commitment to deliver better outcomes to our clients in terms of product development. We have been working hard behind the scenes for almost a year to further develop the FP Henderson Rowe FTSE RAFI Emerging Markets Fund (previous name) which we promoted to the UK market. Our hard work has paid off and, in the midst of July during the lockdown, we received 100% shareholder approval to change its name to FP Rayliant Quantamental Emerging Markets Equity Fund. Our shareholders were also supportive of the change of its investment strategy from passive to active management style by incorporating a quantamental element into our stock selections. In quantamental investment strategies, investment decisions are made by combining large amounts of data, computer models and machine learning with human insights about fundamental economic and financial features of investments.
We believe that these changes have impacted our clients’ investments in phenomenal ways. While COVID-19 is hanging over us in our everyday lives, Henderson Rowe has the tools to bid it goodnight in our professional life.
Henderson Rowe is a registered trading name of Henderson Rowe Limited, which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number 401809.
The information contained in this article is the opinion of Henderson Rowe and does not represent investment advice. The value of investment may go up and down and investors may not get back what they invested. Past performance is not an indicator of future performance.