The best way to sum up the past few weeks would be to say that we are living with near-constant uncertainty. For all of us this has been, and continues to be, a testing period where it can be difficult to make decisions about the future. As equity investors, outperformance is built upon an ability to make these decisions successfully. The problems currently facing equity investors, we believe, are three-fold: firstly, the medical issue of the virus itself; secondly, concerns around financial markets and thirdly, the economic background that we will have to live with for the rest of 2020.

In order to get true clarity on the long-term outcome for these three issues, we require a solution to the virus itself. Clearly this is likely someway off and so, in the absence of that, we have seen the short-term solutions to try to help bridge the gap such as social distancing and lockdowns to limit the spread of the virus and unprecedented financial support from central banks to seek to ensure enough liquidity remains in the market (avoiding the situation we had during the global financial crisis in 2009). This allows investors to begin to assess the long-term outlook without having to deal with the short-term volatility seen at the end of Q1.

We believe the long-term impact is mainly economic with most countries facing recession, or significantly curtailed growth. For this damage to be reduced it is imperative that businesses can resume at pre-virus levels as soon as it is deemed safe to do so. Thankfully, due to the fiscal support announced recently, most business should be able to do this and prosper post-lockdown, allowing markets to recover. This ability for companies to recover is crucial and it is what investors have been looking at over the past few weeks and why markets have bounced back so significantly.

As stock pickers, it is our job to identify which companies which we believe will be able to do this most successfully. Companies that have done particularly well so far were those that were able to show resiliency through this period. These companies tend to have two attributes in common—high cash flow and strong balance sheets. The quality nature of these businesses has long been attractive to our Global Concentrated Equities team when looking for investments into the strategy. While there was little worry that these companies would fall into administration, in a post-COVID-19 world, there will be those that find future growth harder and those with brighter prospects. This can be seen through our holdings with companies such as Alibaba and Tencent, which are perhaps more obvious examples, but even companies like ASML Holdings, who provide equipment into the semiconductor industry across Europe, have reported strong figures up year-on-year from 2019.

Finally, there are opportunities in those businesses that have been affected by COVID-19 but where their stock price has still, in our opinion, been hit far harder than the long-term prospects would suggest. And that is the key point through all of this, for most companies 2020 earnings will be down, however their prospects over a two-to-five-year period is where, we believe, investors should be focused and where the opportunities lie.

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