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Three funds capturing the bounce-back from lockdown

28 May 2021

4 minute read

It’s been a busy year for fund managers, as periods of national lockdown have forced them to reconsider the future prospects for the companies they invest in. We look at three funds that have been devoting their time to working out which companies will emerge from lockdown stronger, and which ones may well struggle.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • Learn about the JO Hambro UK Equity Income Fund
  • Learn about the BlackRock European Dynamic Fund
  • Learn about the Loomis Sayles US Equity Leaders Fund

As the UK eases its lockdown restrictions, we are seeing more and more businesses reopening. But the marketplace today is very different to how it was pre-Covid. We have changed the way we shop, the way we work and the way we go about life. As a result, some businesses have flourished while others have struggled. Some businesses will never reopen. Other businesses will step into the gaps where others have failed, to become bigger and fitter and stronger. As an investor, opportunities exist, but they can be difficult to find.

The bounce-back

The share prices of many of the companies that have struggled during lockdown have already started to bounce back. This is the market trying to second guess how these companies will fare once we return to some kind of normality and consumers start to spend again. Fund managers and their teams of analysts are spending their time poring over the reports and accounts of these businesses, talking to the management teams running these companies and trying to understand whether they will be winners or losers in the post-lockdown world.

Three funds to join the ride

As a result of the volatile markets in 2020, we witnessed fund managers working harder than ever to try to find investment opportunities in the rapidly changing markets. Here are three investment funds on the Barclays Funds List, which have found such opportunities, and could be worth taking a look at.

JO Hambro UK Equity Income Fund

‘Misunderstood’ is a good word to describe what the team at JO Hambro look for. Whilst the underlying aim of the fund is to invest in companies that are paying a strong dividend, they put great emphasis on searching for companies that are cheap because the market simply does not understand their true potential. And during 2020, the team were able to identify a number of these ‘misunderstood’ companies. Businesses which had suffered during lockdown, but with the potential to recover quicker and stronger than the market is expecting.

One such example is the British new and used car market. The team bought into car dealership company Lookers, in the belief that the company was ‘misunderstood’. Although that market suffered during lockdown, they anticipated that buyers would return. And they did. Demand for cars has surged, partly from the pent-up demand but also from a part of the population who are turning to private car use instead of public transport in the post-Covid world.

Other examples of ‘misunderstood’ companies include DFS (taking market share, as other furniture stores have gone bankrupt during lockdown), and ITV (as advertising returns to normal).

BlackRock European Dynamic Fund

If the word ‘misunderstood’ sums up the JO Hambro way of investing, this fund’s approach is in its name – ‘dynamic’. Having a dynamic approach to investing enables the fund manager to take advantage of a constantly changing investment and economic landscape. And the last 10 years has shown us that Europe can be an unpredictable place to invest. This dynamic approach has led to some interesting investment opportunities during lockdown, in some very unexpected places.

DSV Panalpina is an interesting example of such an investment opportunity. It’s a Danish logistics company, transporting goods around the globe via air, sea and road. As the global pandemic restricted travel, entire fleets of passenger airliners were grounded. But a lot of global air freight is transported in the luggage holds of passenger planes. This meant that air freight prices surged higher, as companies battled for the use of DSV’s dedicated cargo fleet. And the share price bounced back accordingly. Note that past performance is not a reliable guide to future performance.

Another unexpected area that opened up as an investment opportunity is the luxury goods sector. Despite the share price of companies such as LVMH (Louis Vuitton, Moët Hennessy) and Kering (parent owner of Gucci) dropping by about a third during the early months of 2020, it quickly became clear that demand from the wealthy and super-rich remained strong, and the shares quickly bounced back.

Loomis Sayles US Equity Leaders Fund

How about something completely different? How about the Loomis Sayles US Equity Leaders Fund? The approach at Loomis Sayles is to take a long-term view on everything you buy. And we mean very long term. Their belief is that, if you put enough work in to find the strongest businesses to invest in, they should be able to ride out and survive whatever chaos is thrown at them. In fact, there have been long periods when the fund does not buy any new companies. And those periods can be years.

But market volatility creates opportunities to make changes to your investment portfolio – even for the very longest of long-term investors. The fund sold out of its holding in Coca Cola during lockdown. They had been invested in Coca Cola for nearly 15 years, and the shares had done very well during that period. The decision was made on their belief that an extended lockdown could be detrimental to profits.

It’s all about the ‘away from home’ market, where consumers buy Coke at restaurants, cafes, sporting events, concerts, etc. This represents about 50% of sales for Coca Cola, but the margin on this is significantly higher than the margin on selling Coke in supermarkets. So, if lockdown is here to stay, it could have an impact on the share price, bigger than the market is expecting.

Don’t get too carried away

If there are lessons to be learnt from 2020, it is to expect the unexpected. There is no guarantee that markets will continue to bounce back. Investor sentiment can quickly switch from excitement and euphoria to disappointment and panic at a moment’s notice. So, while an adventurous investor may well be tempted to look at these funds as a way to participate in further recovery in share prices, there’s no guarantee that the fund managers will get it right and there’s no guarantee that the bounce will prevail.

These three funds are part of the Barclays Funds List, where there are plenty other areas to invest in and funds to choose from. Find out more information on these funds.

To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Appendix: Share price returns

 

30 Apr 2016 to 30 Apr 2017

30 Apr 2017 to 30 Apr 2018

30 Apr 2018 to 30 Apr 2019

30 Apr 2019 to 30 Apr 2020

30 Apr 2020 to 30 Apr 2021

DSV Panalpina

 49.77%

 34.37%

 22.47%

 15.55%

 96.98%

LVMH

 68.0%

 33.39%

 18.04%

 2.05%

 80.35%

Kering

 104.63%

 76.02%

 15.65%

 -11.74%

 42.66%

Source: Bloomberg, Barclays, in GBP

Note that past performance is not a reliable guide to future performance.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ. Past performance of the fund and its manager are not a reliable indicator of their future performance.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

Plan & Invest is a service which creates and manages a personalised Investment Plan just for you. Whether your long-term goal is your child’s university education, retirement or just building a nest egg, all you have to do is tell us a bit about yourself and then, if your application is successful and you’re ready to invest, let our experts select and manage your investments (minimum investment is £5000).

Read the Assessment of Value report [PDF, 683KB] for funds run by Barclays.

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