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March 2021 investment update

Our March investment update is now available to download.

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Investment outlooks / Q4 2020

The “Recovery” basket has not performed as well as our other themes. Our initial view of an oil supply rebalancing and a recovery in oil prices did not materialise and the chances of it happening in 2020 were fading. US shale oil producers have been slow to cut capacity, supported by easy access to liquidity. OPEC+ was also struggling to make further headway in rebalancing the market. On the demand side, the International Energy Agency cut its 2020 forecast for global oil demand once again in early September, mentioning an “even more fragile outlook”. On top of that, air travel data had remained weak with the traffic recovery to pre-pandemic levels expected to take several years. As a result, we took a decision to sell Total from our portfolios. Instead, we purchased a Materials ETF, which is a part of our core holdings. We see the sector as less affected by the global pandemic as goods have been recovering much faster compared to services (“shop from home” continues even with social distancing restrictions in place). Moreover, the sector does not have the oversupply issues as in the oil market.

Volkswagen’s (VW) performance over the quarter has been driven by several developments. To begin with, VW group car sales have been recovering faster than the total car market since bottoming in April. In September, VW global sales returned to positive growth, rising 3 per cent. Notably, the growth was driven by strong European (German) performance. Prior to September, China was the first region to recover and acted as the main growth driver. Also in September, the company hosted a virtual Electric Vehicles day where management re-emphasised its confidence in VW’s battery electric vehicle strategy (BEV) and broader BEV ambition. VW said it continues to target up to 3m BEV sales per year by 2025 with 75 new BEV models as part of its first wave. And finally, the newsflow around divestments increased over the quarter. In addition to potential spin-offs of Lamborghini and Bugatti, Reuters reported that Volkswagen Group was hosting preliminary talks with potential bidders for its Ducati brand to gauge potential interest in the motorcycle maker ahead of a November planning round. Our view on divestments is positive as we believe they will allow VW to unlock value of its sports luxury (Lamborghini, Buggatti) and premium electric vehicles (Porsche) portfolio.

The main story for Peugeot over the quarter has been its upcoming merger with Fiat Chrysler Automobiles . Reuters reported on 26 October that the two companies are set to win EU approval for their $38 billion merger to create the world’s fourth largest carmaker, as they strive to meet the industry’s dual challenges of funding cleaner vehicles and surviving the global pandemic.

Disney was mainly driven by theme parks and streaming developments over the recent months. On 29 September, the company announced it would lay off 28,000 workers within its parks segment (mostly US theme parks). While the statement suggests a slower-than-expected recovery in theme parks, it also helps to lower the break-even utilisation rate of the parks division from approximately 57% to 43% going forward. However, a more important development has been Disney’s reorganisation of its operations to put a higher priority on streaming. The announcement came days after activist investor Daniel Loeb urged the world’s largest media company to invest more in the business that Netflix has pioneered. Disney said it would separate content production from distribution, with an eye towards making television shows and movies to feed into its streaming services. This is a major step and the strongest signal on its commitment to the streaming business.

The ”Resilient” basket now only contains Unilever and it has performed slightly better than the “Recovery” basket. The company’s Q3 update came better than expected with organic sales growth up 4.4%. All product groups and regions accelerated in Q3 but the most notable improvement came from Food & Refreshments which grew by 3.7%, and included double-digit growth for the retail food business.

Click chart to expand. Source: Refinitiv, Datastream, October 2020.

Past performance is not a reliable indicator of future returns. Forecasts are not a reliable indicator of future returns. If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations.

If not otherwise indicated, all graphs are sourced from Dolfin research, October 2020.

For more information please read our disclaimer.

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