Freedom Day arrives but investors are still anxious

After almost 18 gruelling months, endless rule changes, lockdowns, vaccinations, hopes and setbacks, most legal restrictions to combat COVID-19 have finally been removed the week.

It means we are now officially allowed to meet each other without having to obey strict social distancing guidelines and no longer need to wear face coverings. We can also attend concerts and sports events, as well as inviting as many people as we like to weddings, civil partnerships and funerals.

However, this long-awaited move into step four of the government’s route out of coronavirus restrictions hasn’t been the glorious occasion that everyone envisaged. Rising COVID-19 rates and an alarming number of people being ‘pinged’ by the NHS coronavirus app and sent into isolation have tempered enthusiasm.

Research by Ipsos MORI for The Economist also revealed support for extending certain restrictions to stop the spread of COVID-19. A majority would like face masks to be compulsory in shops and on public transport for longer, with 70% wanting to see the policy continue for a month after 19th July*. 

The London markets reflected the anxious public mood on so-called ‘Freedom Day’ (Monday), with the FTSE 100 list of blue-chip stocks down 2.7% by mid-afternoon.

Alan Dobbie, co-manager of the Rathbone Income fund, which is on the Chelsea Core Selection, expects a longer-term UK economic recovery driven by increased consumption and fuelled by high savings ratios unleashing pent-up demand. However, he remains cautious over a short-term boost as a result of so-called ‘Freedom day’.

The fund’s sector and stock positioning, therefore, reflects this stance with very little direct ‘reopening exposure’, such as restaurants, pubs, cinemas, hotels, and airlines. “We believe that the fortunes of these businesses remain tied to the fight against COVID-19,” he says. “A potential reimposition of some restrictions further down the road could hit share prices.”

The fund’s preferred way to gain exposure to the longer-term UK economic recovery is through positions in banks and housebuilders. Among the individual stock names favoured are Lloyds, Natwest and Close Brothers for the banking side, and Persimmon, Bellway and Berkeley Group within construction. “We believe both of these sectors are attractively valued and have the potential to generate significant income and capital growth over the coming years,” he adds. 

Chris St John, manager of the AXA Framlington UK Mid Cap fund, also believes the rapid spread of the highly transmissible Delta variant of COVID-19 is a cause for concern. However, he says this needs to be viewed in context.

“Economic data over the last three months has generally been very strong and global forecasting bodies are now projecting that the UK will be one of the fastest growing of the major developed economies in both 2021 and 2022,” he said.

Chris suggests the attractiveness of the UK as a place to invest is being illustrated by the ongoing flow of M&A activity in the UK-listed space. “With so much liquidity still in the system, this is likely to continue to feature over the coming months,” he added.

Ainslie McLennan & Marcus Langlands Pearse, the co-managers of the Janus Henderson UK Property fund, expect a “new normality” in the UK as we move out of lockdown and vaccinations continue.

They believe this will particularly be the case with more office tenants experiencing an increasing number of employees returning to work in the office. “Retail and leisure facilities are also being utilised more,” they suggest. “We think this should be beneficial for tenants that operate within these sectors.”

Ainslie and Marcus point out that the industrial and logistics sectors are beneficiaries of the rise in e-commerce, which has been encouraged by the various lockdowns. “Supermarkets have been a beneficiary of the lockdown and those tenants occupying properties owned by the fund continued to trade well,” they added.

Of course, there are still wide variations in economic forecasts to gauge the ongoing impact of COVID-19. However, the two managers remain optimistic. “With the UK having moved quickly to procure and administer vaccines, the easing of lockdown restrictions should over time be positive for good-quality, well-located commercial property that is sought after by tenants and supports our day-to-day social and working life,” they conclude.

*Source: Ipsos MORI survey, July 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.



Published on 20/07/2021