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Richard Scrope
Fund Manager
Having now morphed into phase two of the emergence from lockdown, the UK population is looking forward with renewed optimism to a full reopening on 26th June. The initial signs from the first quarter reporting season are that companies have used the last year to adapt their business models to be better positioned to capture the opportunities that lockdowns and increased consumer savings have created and thus company managements are also becoming more optimistic, as seen in the recent purchasing manufacturers and leading indicator surveys.
Equity markets also have reason to be looking forward to this and next quarter’s earnings seasons, as they lap the nadir in earnings reported last year, which should create an optically large year-on-year increase in earnings per share. Beyond the summer, however, the comparisons have less of a tailwind and EPS growth should come down, although remaining positive.
The second derivative effect (i.e., the rate of change) can often have more of an effect on equity markets than the core year-on-year numbers, so the leadership of reopening, deep value equities may start to give way to those that can continue to grow in what is likely to be a lower growth environment than we have experienced in the past 10 years, despite the best efforts of worldwide governmental bodies.
With a possible change in leadership comes the question of what to do now, and we believe that depends on your investment horizon, as in the short-term highly leveraged, deep value and reopening themes are likely to continue to outperform, and quality companies being used as sources of funding for these plays. We do accept that some of the rotation to more cyclical companies may continue to have legs and may persist, on a longer time horizon, we believe that using the current underperformance of quality companies to begin to rebuild positions in these companies at more reasonable valuations to create a more balanced portfolio is prudent. Companies that enjoy durable competitive advantages, outsized growth opportunities, with quality management teams that are leading them through the rapidly evolving digital landscape are better positioned for a more challenging equity environment in the back end of the year and 2022 than many of the current market leaders.
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not