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Weekly Manager Views: Equities

07 April 2020

At GAM Investments’ Weekly Equities Meeting held on 6 April, Adrian Gosden discussed his views on UK equities and dividends, and Ali Miremadi highlighted some potential opportunities in global equities.

Adrian Gosden – UK Equities

UK investors have witnessed a widespread removal of dividends in sectors such as construction, retail, leisure and travel, all of which have been heavily hit by the coronavirus pandemic. The morality of dividends is proving harder for the market to digest, as seen with UK authorities stepping in and instructing banks not to pay dividends. Some financials, such as Legal & General, will pay a dividend. Others also have the ability to pay, but the question is whether they should.

The oil sector has seen a decrease in demand and increasing supply, which has impacted major UK-listed oil producers. However, providing they make it through the current crisis and pay dividends going forward, large-cap oil firms may look more appealing. A number of utilities and telecoms companies have remodelled their dividends recently. The challenge will be getting yields from companies against a Covid-19 backdrop.

We have seen shares of certain cyclical companies fall a long way, but with the potential for a rebound. Housebuilders, for example, could bounce back. Many have big land banks and net cash positions. Other companies, in particular small caps, have been trying to raise equity and there has clearly been strong appetite. In addition, some shares which previously looked too expensive could now offer an attractive entry point.

Ali Miremadi – Global Equities

We are all somewhat in the dark about the economic damage caused by Covid-19.  For instance US unemployment forecasts have skyrocketed from 3.5% to 15% in just a few weeks. Thus far third-party stock analysts have barely begun to cut earnings estimates on companies in general.

From a long-term perspective, we aim to focus on those areas in which companies have the least reason to reduce their numbers going forward and can continue to generate cash flows. Some may come out of this with more attractive valuations, too. We are likely to have the opportunity to buy companies we previously could not afford.

In terms of sectors, staples and medical-related areas continue to look more interesting than others, such as financials, in particular in the UK where the regulator has taken punitive action in the shape of stopping them from paying dividends. Meanwhile some companies, such as hotel operators, have been very much in the eye of the storm. What will be interesting, in our view, is where dislocations occur but companies remain strong and look likely to survive.

Companies in China, such as Alibaba and Tencent, have been noticeably open with investors in terms of their plans, while it is clear all things digital, and companies operating in those areas, will benefit in the long term.

Important legal information
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. April 2020