The Share Centre: The funds, stocks and sectors best equipped to deal with coronavirus turmoil
Outperformers to look out for
Covid-19 has had an impact on each sector in different ways. However, the virus has also shone a light on sectors that have been able to provide some support to portfolios, such as tech and healthcare, both of which have performed well over the course of the year.
We have also seen this feed through into the fund inflows, particularly in European tech, which has seen €5.7bn in inflows, a figure that has already exceeded levels seen in 2019.
Investors' demand for tech is strong and goes to show where the appetite is at the minute, with many feeling this will be sustained moving into the future as the role of technology increasingly becomes a more integral part of our lives and the way businesses operate.
Another sector that has continued to progress despite Covid-19 disruption is healthcare. Globally, this sector is benefitting from some strong demographic and economic tailwinds and has received a lot of investor attention of late due to the defensive cash flows on offer.
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Technological change, ageing populations in a number of global markets and a greater consumption of healthcare products and services has resulted in the sector exhibiting more growth characteristics.
This helps explain why in the S&P 500, more than 80% of healthcare companies exceeded revenue estimates in Q1 2020 - more than any other sector.
This highlights the consistency of cash-flows and continual ability to grow the top-line despite difficult market conditions.
One stock we like in the healthcare space is AstraZeneca. As well as the structural drivers mentioned above, we feel the company has a strong product portfolio after a step-up in R&D spending and a healthy position in the market. Expansion into China and the emerging markets also has big potential for the group.
Q1 showed the impact of Covid-19 with consumers stocking up on medicines, inflating revenues and EPS by 16% and 27% respectively.
Provided Covid-19 is not prolonged, we see sustainable longer-term growth for the Group with the shares paying a good dividend.
As we begin to start the process towards recovery, one area of the market we are relatively confident on is commodities - and in particular the miners.
As well as being an inflation hedge, this sector offers some good opportunities in relation to the global recovery.
Following a moderation of Chinese growth back in 2016, which consequently led to an oversupply and a big drop in prices, miners restructured operations in a bid to become more streamlined, helping refine business models to a much healthier position today.
Furthermore, with a relatively resilient Chinese economy and other economies reopening, this is lifting demand and therefore we're now starting to see prices creep back up.
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A stock we like in this space is Rio Tinto. This was one of the first miners to repair its balance sheet and restructure its costs back in 2016 and therefore has become a much more streamlined business.
Predominately focused around iron ore, the business does have an element of concentration risk, however the commodity has held up relatively well throughout the crisis according to its Q2 production report which saw production of iron ore increase by 3% despite difficult market conditions.
We feel the group is well-capitalised to navigate themselves through the current crisis and remain attractive for longer-term investors.
Outperforming sectors
The IA Technology and Communications sector has delivered a total return 25.34% YTD, which will come as no surprise to investors who have seen tech stocks fly in the face of the adversity caused by Covid-19.
There are many commonly held stocks within the funds in this sector so it is no surprise to see it perform well as a whole.
The sector will most likely continue going from strength to strength over the coming years as more and more businesses shift their long term focus to tech.
Hot on tech's heels has been the IA China/Greater China sector with a return of 20.97%, mainly benefitting from China having a first-in-first-out relationship with coronavirus.
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