Where to invest your money in the event of a second COVID-19 wave? | bestbrokers.co.uk

Where to invest your money in the event of a second COVID-19 wave?

2020 has been a challenging year on many levels. Because of the COVID-19 pandemic, the market has been incredibly volatile. Markets collapsed before skyrocketing and setting new records. Some have gained from it, while others have lost. But is all this behind us now? What will happen in the event of a second wave, or another lockdown?

This is a companion discussion topic for the original entry at https://www.bestbrokers.co.uk/blog/2020/10/06/where-to-invest-your-money-in-the-event-of-a-second-covid-19-wave/

Back in January of this year, before as a result of a surge in cases the WHO officially recognised the spread of COVID-19 as a pandemic in mid-March 2020, I answered the question on "Where To Invest Your Money in 2020?" by highlighting Ocado, Morgan Sindall Group, Forterra plc, Countryside Properties and The Royal Dutch Shell ‘B’ shares.

Since then the following has happened to these picks compared to the FTSE 100, Nasdaq Composite Index and Standard & Poor 500 Index as a whole:

January Mid-February October
OCDO 1,259 1,135.5 2,383
MGNS 1,620 1,970 1,209
FORT 357 371.5 191.8
CSP 468.2 540.5 369.6
RDSB 2,258.5 1,886.4 964.7
FTSE 100 7,604.3 7,403.92 6,013.69
Nasdaq Comp 9.020.77 6.879.52 (mid-March) 11,420.98
S&P 3,234.85 2,237.40 (mid-March) 3,477.13

So, despite the dismal performance of RDSB (I did warn that it was one for the long-haul!) and the impact of COVID worldwide I’m not too disappointed in my January picks as they seem to have - bar one - weathered the storm quite well and are starting to rise again, just in time for a second hit, if it is to come. Without the Covid-19 pandemic in all probability they all, again bar one, would have seen a good return on investment.

What is also of significance to mention is that it is not so much as the first wave or the second wave but the various governments’ reaction to these occurrences. This is highlighted in the FTSE 100, the UK’s leading index, which dropped below 5,000 points on 23 March, the day the UK lockdown was announced.

So where to now - the tech and healthcare related stocks seem the obvious choice but are they really the best options?

On the plus side having experienced a first wave, if a second wave does come about then it is likely to be less severe than the first. The UK is better prepared from a medical, technological, and social standpoint with the stuttering testing and tracing system to seeing the general population taking precautions such as mask wearing, frequent hand-washing and social distancing.

We also know that the surviving businesses are now better prepared as they have as a matter of course had to adapt and innovate in this new environment, in ways that they probably wouldn’t have even considered, in order to carry on their work practices. In many cases we are seeing trends, such as more working remotely and from home that will no doubt be carried forward when all of this is behind us.

From an investor’s perspective, those who have been watching the markets closely through these turbulent months will have realised the need to diversify beyond the UK. We have seen a reasonable upturn in the FTSE over the last few months but it would be a stretch to call it a recovery as it is still along way adrift from the highs of 2019. However, if you look across the water to the main US financial markets we have witnessed the Nasdaq and the S&P500 starting to soar again.

So to maintain a balanced portfolio, for now at least, it would be wise to have a selection of US stocks with the top giants of:

  • Amazon which was at $1,874 in January and is now at $3,342,
  • Facebook which was at $209 in January and is now at $267,
  • Apple which was at $74 in January and is now at $120,
  • Netflix which was at $329 in January and is now at $539,
  • Google which was at $20 in January and is now at $37,
  • PayPal which was at $108 in January and is now at $197 all being the obvious choices here.

Obviously and simultaneously the UK government wants people to get back to work as soon as possible in order to get the economy back to a level that in the short term is at the very least approaching normal. So there is light this side of the Atlantic too, you just have to tread very carefully and pick after that double-dose of diligence.

So in addition to my US shares, I have kept my stake in:

  • Ocado (LSE:OCD) (as shown in the chart above) and then further invested in June in the following there options,

  • Fever-Tree (LSE:FVR) which started the year at 2,091 GBX then fell to a low of 90 GBX before rising again to a current value of 2,170 GBX;

  • Anglo American (LSE:AAL) AAL which started the year at 2,202 GBX then fell to a low of 1,091 GBX before rising again to a current value of 1,945 GBX;

  • Scottish Mortgage Investment Trust (LSE:SMT) SMT which started the year at 586 GBX then fell to a low of 546 GBX before rising again to a current value of 1,047 GBX - all of which are tracking favourably to date.

So that’s where my money is right now - where are you putting yours?

Some interesting thoughts Trudy and Carlo, not all that I agree with as you might expect.

Right now, due to the obvious, we are seeing something akin to when the tech funds were riding the bubble. From historical reference I would expect the price corrections to be brutal over the coming years.

True, the American stock market has been doing very well, mostly thanks to these technology companies. But people have already realised this and jumped on the bandwagon, pushing share prices up.

If it’s a buy and hold investment you are looking for then you could do a lot worse than just put your money in to Amazon stock; a Goliath right now for sure which will be a bigger one in years to come.

Growths not dividends are probably more appropriate for those in the earlier stages of their investment career; or even for those who missed out on the earlier recovery.

Not wishing to teach granny to suck eggs, but newbies should be aware that the FTSE100 famously has little to do with the UK economy simply because the largest companies in the index are huge multinationals doing most of their business outside the UK.

Taking the top five of these by way of example, if you look at the likes of AstraZeneca, GlaxoSK, Diageo, BAT and HSBC you will clearly see that they fit this profile. Out of these five if you take an even closer look at Astra Zeneca’s sales into the whole of Europe last year you will see that they were only 18% of their total sales, so you really need to ask the question how much does what is going on in the UK really affect them?

Moving back across the Atlantic, there is a great deal of discussion surrounding the ever volatile Tesla stock. As much as I admire (and even wonder on occasion) at Elon Musk’s intelligence, vision, drive, ingenuity and sheer bloody mindedness to meet project completions, there in the back of my mind is always a big question surrounding the economics of his entrepreneurship(perhaps more so with Tesla than with SpaceX) .

If you take a closer look at Tesla’s financials you will see lots of sales of credits and ongoing large losses on real sales. The Tesla valuation, in my honest opinion, makes the dot com bubble of the late 90’s look relatively sane, and with numerous competition biting hard into its sales Tesla will never justify today’s valuation. There, I’ve said my piece on that.

So yes, you should be very worried about the amount of Tesla exposure you have if that’s where you’ve been putting your faith/money.

Moving on, I recommend diversification and balance as the keys to success in these time and would be very concerned to find that any fund manager has more than 10% of their portfolio in a single stock. See the recent issues with Wirecard and Grenke as examples of what can go wrong in an over weighted portfolio.

As for fast growing British technology stocks, some of the following may be worth a look: Blackbird, IMIMobile, EagleEye, D4T4, Solid State, Codemasters, Team 17, Sumo, Frontier Developments, and Bidstack. I, quite deliberately, haven’t pointed a finger at my choice here and which ones to avoid (as there sure a couple!) that is for you dear investor to workout with your own due diligence.

On a final note, for now, the shrewd/brave (?) investors will have looked to the East a few months ago as today we see in very recent reports that the CSI 300 index ( the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange ) has now risen above $10 trillion. No mean achievement, as this 27% 2020 YTD rise has seriously outpaced the relative frugal 8% 2020 YTD seen in the rest of the world’s markets.

In tandem with this emergence, some might read something more sinister in the PRC’s involvement and response to the pandemic which has strengthened its position as one of the leading global economies.

From an investor’s point of view again from a purely personal perspective, my concerns in investing in China, or indeed any emerging markets, is the associated high risk due to a lack of transparency not only in terms of accounting but also who ( especially in the CCP ) makes the final impacting decisions!