Living in a world that’s changed for investors

It is very unlikely we will see a full return to the ‘nine till five’ office routine

How might the world look five years from now? It’s impossible to predict five weeks ahead, let alone five years as the coronavirus pandemic wreaks a trail of destruction across families, households, business and government as the global lockdown continues.

Government priorities before the coronavirus epidemic struck have been totally upended. Talk of a “V-shaped recovery” looks all the more irrelevant as the nature and composition of the underlying economy is having to cope with profound change.

Let’s start with the positives. Intuition and past experience tell us that this crisis will peak and pass. Rates of infection in Italy and Spain are slowing. China is reporting a pick-up in industrial activity. And here and across the world, there is growing evidence of innovative and adaptive responses: enterprise will lead the way out of this crisis, as it has so often done.

It is this – as much as the colossal damage inflicted by the pandemic and its lockdown consequences – that will reshape the world that will emerge. And that will require long-term savers and investors to re-think how their nest-eggs are positioned.

Popular equity income funds, looking after some £60 billion of savings, are taking a battering.

More than 20 listed companies have so far cancelled or suspended dividends worth nearly £17bn. And some 35 per cent of companies in the FTSE All Share have cut or suspended their dividends in the past 30 days.

Last year savers enjoyed dividend payouts totalling £91.5bn. That total is unlikely to be seen again for years.

Funds and trusts specialising in Asia – Japan in particular – have fared relatively well and are experiencing an influx of investor cash, while funds specialising in the US market have suffered a £24.5bn shrinkage amid fears that the US could be set for a prolonged slump.

While there are some winners, there are many other vulnerable areas. We are already seeing a quantum leap in the use of the internet and communications technology. Work-from-home software companies are outperforming the behemoths of the S&P 500, while the market capitalisation of flexible working service group Zoom with its video conferencing technology is now worth more than all US airlines combined.

From distance working to online shopping, the world as we know it is now experiencing a seismic shift. There will not be a return to “status quo ante” – the changes under way are set to prove longlasting.

Airline companies large and small, travel and tour operators, hospitality concerns, entertainment venues and thousands of service companies on our high streets are now fighting for survival. And the commercial property sector could emerge as one of the biggest casualties.

It is very unlikely we will see a full return to the “nine till five” office routine with millions enduring a daily commute into city centre office blocks. Companies are now asking searching questions as to whether they wish to return to the many costs of this model of work – rent, rates, security, maintenance, cleaning and servicing – when a significant part of a tech-linked workforce can work as well – if not better – at home. In time many office blocks could be converted into city centre residential flats.

Little wonder that commercial property specialist investment trusts have been among the worst hit. The lockdown measures enacted by governments in the UK and elsewhere have had a colossal impact on daily life – not least shopping. For example, Intu Properties, a real estate investment trust specialising in the development and management of shopping centres in the UK and overseas, was the poorest performer of the month as consumers were forced indoors. Shares in Intu have suffered a fall of more than 60 per cent.

It was joined by other commercial property trusts such as New River Reit which focuses on leisure and retail (down 61 per cent), premium retailer investment company Hammerson (down 58 per cent), and regional UK shopping centre investor Capital and Regional (down 50.24 per cent).

Meanwhile, how might equity income trusts fare amid the deluge of dividend cuts? Analysts at Investec calculated the impact a 30 per cent fall in income – greater than that experienced during the financial crisis . The end of year one would be the nadir, with dividends then returning to pre-crisis levels, and all UK income trusts would be able to cover any such shortfall in income. But after second year of 30 per cent dividend cuts, revenue reserves of many trusts would not be sufficient.

Looking at the trust universe as a whole, prominent outperformers included BH Macro (plus 13.9 per cent), International Biotechnology (up 10 per cent), Aberdeen Standard European Logistics (up 8 .9 per cent) and Allianz Technology (plus 6.1 per cent).

Thus, portfolio diversification, both geographic and by specialism, would seem to offer some shelter in this epochal storm.