Why Proper Investing and Pandemics Don't Mix

Editor's Views: Best to ignore the commentary about what stocks we should be buying and selling to best profit from the spread of the coronavirus 

Holly Black 28 February, 2020 | 10:10AM
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An email from a colleague on Thursday read: “How much is your portfolio down this week? I’m going to buy some healthcare stocks.”

My reply: “I have no idea, I haven’t looked.”

Me, Me, Me

Yes, the FTSE 100 has certainly made for uncomfortable viewing the past few days. It hasn’t fallen below 7,000 for more than a year, but a coronavirus-induced panic has driven the UK stock market down to its lowest levels since December 2018.

I’ve seen a lot of commentary about what stocks and sectors we should all be buying and selling to best profit from the spread of the disease but, honestly, how can you know when the situation is changing every single day? And that’s before even touching the ethical debate around tilting your portfolio to profit as people suffer.

The investment industry is sometimes a bit like that friend who makes everything about them. It can shoehorn a message into Christmas, Valentine’s Day and even Halloween. So perhaps it’s no wonder that as a virus spreads across the world, the market is thinking: “What does this mean for me!?”

I guess it’s partly good sense; if you think global stock markets are going to nosedive this year and not recover, it’s probably best to shift your portfolio to reflect that. If you’re just trying to make a quick buck on healthcare stocks, maybe not.

Property Deals Take Time

I keep seeing announcements along the lines of “M&G Property Fund STILL suspended” and can’t help but think: Well, duh.

For the uninitiated, the property fund suspending trading in December amid liquidity concerns. Investors had been taking money out of the fund and the managers didn’t want to be forced into a firesale of their properties in order to raise the cash to meet those redemption requests.

The M&G Property Portfolio invests in around 90 commercial properties across the UK, including retail parks and offices. Now, I’m not sure if you’ve ever bought or sold a house, but it can take a long time. I viewed the first house I bought in August 2013 and it was almost six months before I finally got my hands on the keys. There wasn’t even a reason for the hold-up – just the usual solicitors doing their thing, people fussing about surveys, and then, you know, Christmas so let’s delay everything another month. It was pretty stressful.

But imagine selling an entire retail park! No wonder this fund is still suspended two-and-a-half months later.

The issue of whether properties should even be allowed in open-ended funds is a very different one (I’d personally argue it’s not appropriate). But once a manager has made the decision to suspend trading in order to avoid a firesale of their properties, don’t then be surprised when they don’t have a firesale of their properties.

Dividends With a Moat

We love dividends here at Morningstar. Dividends is employee of the month every month - it's very demoralising for the other members of the team, to be honest.

But dividends can be tricksy. Because sometimes they look very meaty against a company's share price, but that could be because the share price is going down, as opposed to the dividend going up.

We did some number-crunching this week and found nine stocks that have not only grown their dividends for at least 10 years in a row, but also have an Economic Moat - which means they're likely to be able to grow them in the future too. 

If dividends are important to you, this is the type of stock you need to look for. Because an income from your investments is only useful if it increases in line with the cost of living each year. And if finding these stocks seems like a bit too much hard work, there are plenty of fund managers willing to do it for you. 

The Morningstar Investment Conference Takes Place 28-29 April 2020

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk