At the time of writing events are moving very fast and the environment for both the market and real economy is extremely unpredictable. I will therefore highlight those stocks which have fallen in excess of 20% through February and early March.
As a generalisation, our slightly more indebted mid-caps appear to have been in the firing line. Saga and Hostelworld were impacted as travel has been restricted and Braemar is suffering from the lowest chartering rates in shipping for years. Many of our UK centric consumer stocks fell as feedback from the high street in February was increasingly poor and investors worried about pubs and restaurants being forced to close, whilst the poor weather was a further adverse influence.
In specific holdings, N. Brown warned on an FCA ruling with respect to its credit book and Restaurant Group decided to suspend its dividend. Fund management groups (including Jupiter and Polar) fell given their market exposure. Amongst Industrials, Elementis, Synthomer and Essentra fell as investors were concerned about indebtedness. Thirty-two of our companies reported with the majority providing fair to good numbers but earnings upgrades are few given doubts around the impact of the virus. Importantly, we have seen 18 dividend increases compared to three cuts.
Developments in the past week have been considerably worse. Very substantial market falls have been seen, initially reacting to the rapid fall in the oil price, but more recently driven further downwards by the escalation of the virus. With governments closing borders and putting citizens into lockdown the probability of a global economic recession increases daily. As in all times of great uncertainty, share prices have gravitated to the worst bear case and we have seen this in most of the holdings in our fund. Our response is to try to forecast three months ahead assuming no one drinks in pubs, goes to restaurants, travels on buses etc. and determine worst case outcomes for individual companies. The unknown is whether banks will then call in loans that may be in short term breach and a number of stocks are currently being priced as though they will. The one positive note out of this whole dreadful situation is the determination of Governments to avoid recession and to keep economies and companies afloat.