The coronavirus pandemic has shaken markets and resulted in many companies deferring dividends. Chris Murphy, senior portfolio manager for the Aviva Investors UK Listed Equity Income Fund, shares his thoughts on the risks and opportunities emerging as a result
What are your current thoughts on the COVID-19 crisis?
The world is going through an unprecedented shock; it is quite different to anything we have ever experienced in that a forced lockdown resulted in many companies closing their doors overnight.
When markets dip in a ‘normal' economic cycle, businesses have the opportunity to cut costs and adjust their underlying models. But there was no real warning of what would happen to the economy as a result of this virus spreading and the situation means companies have not been able to adjust their costs quickly enough as revenues collapsed. It really is, here is that word again: unprecedented.
How concerned are you about company profits and dividends?
For me it is not just about profits, but about how the pandemic impacts cash flow. Companies need cash flow to pay their day-to-day expenses. This doesn't exist currently and unsurprisingly it has had a knock-on effect on dividends. Many have made the decision to defer dividends. Now even as an income manager I am fully supportive of that in the short term. It is much, much more important that businesses survive this crisis and look after their employees and supply chains. This is particularly important for bigger companies that help provide funding through working capital for smaller suppliers.
Will you take advantage of opportunities over the medium to long term?
We have intentionally not made wholesale changes to the portfolio: we feel it is far better to ‘drip feed' money in a period like this as opposed to trying to second guess a market recovery or the exact bottom. A history of investor returns proves that retail investors in particular are quite bad at that, and currently we are a fair way from finding out the full extent of the pandemic's effect.
During the global financial crisis, we didn't change the way we ran the portfolio either and that comes back to having confidence in our belief structure and philosophy of what we are trying to achieve, as well as knowing the types of [quality] businesses we want in our portfolio.