There is a clear pattern emerging post Covid-19 with tech and healthcare stocks the big winners and this is reflected in the performance of the associated investment trusts.
Many traditional companies have seen their revenues plunge and are struggling to raise enough capital to survive. The large tech companies however have more cash than debt on their balance sheets and have seen a surge in demand for their products as we stay at home to beat the virus.
I suspect that a lot of people will continue to work from home even after the lockdown ends, so the momentum behind the stocks that cater for this environment could continue to grow. Despite the massive dispersion in returns, it is hard to see what could derail the relative strength of tech and growth other than a fully effective vaccine and a return to business as usual.
According to the analysts at Winterflood, 19 of the 20 largest investment trusts by market cap have delivered positive share price total returns relative to the FTSE All-Share index in the year-to-date. This is really impressive, but there are only four that have delivered strong positive absolute returns over the same period to the close on Friday May 15.
They include the growth-oriented Scottish Mortgage (LON:SMT), which is up 20.6% in share price terms; the Polar Capital Technology Trust (LON:PCT), with a gain of 14.9%; Pershing Square Holdings (LON:PSH), a hedge fund with lots of US tech exposure that is up 14.3% and the Worldwide Healthcare Trust (LON:WWH) whose healthcare and biotech portfolio has returned 10.4%.
Biggest and best?
Scottish Mortgage has just released its final results for the year ended 31 March during which it achieved an increase in NAV of 13.7% versus a fall of 6.2% in the FTSE All-World Index. Since then the NAV is up a further 21% against an increase in the benchmark of ten percent.
The managers from Baillie Gifford invest in disruptive growth companies with strong competitive advantages, with the five largest positions being Amazon, Tesla, internet service portal Tencent, online platform Alibaba and the gene sequencing company Illumina.
Numis point out that the share prices of high-growth companies are normally expected to be hit hardest in a recession and market downturn, but this has not been the case in 2020. This is because many of the technology-focused businesses are considered the best equipped to benefit from the quarantine environment.
Tech dominance continues
Large tech companies are likely to come out of the pandemic richer and more powerful than ever, as consumers and governments rely on their services for healthcare education, communication and entertainment. The main beneficiaries will include the large sector specialists like Polar Capital Technology and the Allianz Technology Trust (LON:ATT) that have started the year so strongly.
Healthcare and Biotech are the other main winners as I explained in a recent post.
Growth stocks and tech in particular have been the standout performers over the last decade and the pandemic seems to have given additional impetus to the trend. Many investors have felt that this part of the market has been overvalued for years, but there is no sign of the situation reversing, it could even have become more entrenched.