Published on: April 3, 2020

Another Friday in this new world of ours, but at least some things never change.  Welcome to this week’s News Views and Truths.

This is our first full week of working from home, although we started it in our usual Three Counties way by having a morning coffee and catching up on how everyone’s weekend had been.  Not necessarily the usual, “Where have you been?” as all the answers were pretty much, “Indoors”. 

However, it did provide an insight into the importance of trying to normalise this most difficult of times.  Life does go on; business, where possible, continues to go on at apace.  Although all our staff are working remotely, we continue to work as normal, accessing all our files, albeit remotely from our home PCs using secure and robust technology. 

And this is going to be more important as we move through the year.  This current situation of social distancing will continue and we all must be cognisant of this fact.  However, please be assured that we have the technology at our disposal that allows us to maintain face to face contact with our clients, remotely.  I have no doubt that in the coming weeks, more and more of you will enjoy the ability to talk, directly to me, whilst I sit in my kitchen.  The joys.

I would, therefore, like to take this opportunity to give a massive shout out to the Greaves West and Ayre IT department for all their professional support; they give us the ability to deliver the service to our clients, seamlessly. 

Their work has enabled me to conduct more investment meetings in the past week than I would usually be able to conduct within a month.  And one of these meetings provided great insight into the current pandemic situation.

Our US equity fund of choice is the T Rowe Price US Large Cap Growth Equity fund, managed by Taymour Tammadon and I had the opportunity to hear from him via a web conference.  Firstly, both the company and the manager are US equity specialists of huge reputation.  More importantly for this piece, Taymour is an ex-Healthcare sector analyst and perfectly positioned to dovetail the coronavirus pandemic itself with the impact that will have on equity markets.

There are two critical areas that the team are focusing upon:

Duration of social distancing (US & Globally)

T Rowe Price has specifically tasked a member of their healthcare team to work on this area, looking at tests, incremental tests, positivity rate & most importantly incremental positivity rate (IPR) via their global database.  Most of the world is focusing on the number of new diagnoses, but it is the view of the investment team that the focus should be on regional IPR; as more tests are being done, naturally more people will be diagnosed with COVID-19 so the IPR is a better measure of the pandemic.

The success of social distancing

When do we reach a peak? How low do you go from there before confidence returns and social distancing is eased?  This is exceptionally hard to measure and will differ region to region/city to city.

The management team have one question; “How quickly can we get to a normal recession & out of this economic downdraft we are in?”  To answer the question after the initial wave of the virus, three things will matter the most:

  1. How quickly can the US get a national surveillance system in place for testing? Specifically:
    • Acute test to see if you have it today, and…
    • Test to see if you’ve had it in the past and have a temporary immunity to it.  Right now, the system is inadequate but it should be in place by September at the latest.
  2. The delivery of treatments in order that the fear of the virus will lessen.  This will include Antivirals (although the view of the team is that none of these will have a significantly positive impact on COVID-19), Anti-inflammatory Drugs (will do nothing for the virus itself but will have a profound effect on the mortality rate) and Vaccines (will reduce the fear level the most out of all 3 and is the area the investment team have spent the most time on).
  3. How is the world doing?  The investment teams’ base case is that the virus will spread to the Southern Hemisphere during our summer, with the odds it migrates back up to the Northern Hemisphere next winter being nearly 100%.  The only way that this does not come to fruition is if South American countries clamp down severely on social distancing. However, at this moment in time, it looks unlikely.

To conclude, the investment team have yet to see a drug cocktail that works well enough to give them confidence we will see anything anytime soon.  The current Antivirals were not developed specifically for this virus and are really hard to create; think how long it took for Antivirals for HIV to be developed. 

They do believe the regenerome antibodies and use of antibodies from people who have recovered from the virus will help, but these will only work for a temporary time period (about a month).  However, in the case of regenerome, the number of antibodies you need to protect yourself is exceptionally high; Ebola was 10g per person and this was only to achieve a 65% reduction in infection.  Even if you assume you only need 1g for COVID-19, you could take the entire world’s biological production, dedicate it to this and you still would only be able to protect 50/100m people. 

While it can work, it’s not the answer.  A vaccine is most likely 12 months away, possibly by December when it is likely that the virus will return to the Northern Hemisphere.  However, not everyone will want to take a vaccine that has limited to no testing; odds are that it is given to specific demographically high-risk groups, such as key workers, elderly and those with underlying health conditions.

The recovery of the market is now dependent upon the control and ongoing management of the pandemic.  Governments have done and continue to do whatever they can to prop up their respective economies with levels of stimulus never seen before in the whole of human history.  But until we begin to see a cessation of the spread and management of the cases, uncertainty will reign.

And as I’ve said over and over again, the market abhors uncertainty.  Naturally, my entire focus continues to be held on the management of our investment portfolio and it is during these times that the midnight oil needs to be burned.  Good job Mrs Alexander bought a big barrel of it in January when she ordered all those toilet rolls…

And so, to conclude, our usual playlist.  It’s an eclectic mix of both tracks that pay homage to the North East and some that… don’t.  Have the best weekend you can, take care and I will see you all next week.

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