Firms expecting the market to make a quick recovery are being overly optimistic, according to SG Hiscock, with the firm expecting it to take three years.
During this reporting season, firms had been clear on the need for caution amid an uncertain environment yet earnings per share data was pricing in a 2021 recovery.
Portfolio manager, Hamish Tadgell, said: “We think this is probably somewhat optimistic – after all, it historically takes, on average, three years for the market to return to its previous peak earnings level following a downturn.
“While we recognise this is an event-driven crisis rather than a structural or cyclical recession, and governments have injected massive stimulus, we would be surprised if things return to normal quickly given the economic challenges and dislocation.”
A further factor affecting the speed of the recovery was the range of Government stimulus measures such as JobKeeper and JobSeeker which were suppressing the unemployment rate. But there was likely to be a further negative effect to the economy when these were eventually withdrawn.
Tadgell said the reporting season had also highlighted the divergence between winners and losers with winners being those companies with resilient business models, quality brand names and the ability to capitalise on online demand.
“There have been some good opportunities in those companies benefiting from the ‘stay at home’ trend, the stimulus packages and the low interest rates. These include electronics and furniture companies that can participate in the shift to working-from-home and home-schooling, as well as food delivery and grocery companies,” Tadgell said.
“On the other hand, companies in the ‘out and about’ category – such as travel, hospitality and retail shopping centres have been impacted by social distancing and isolation restrictions.”
The firm’s two Australian equity funds Australia Plus and 20 had both outperformed the ASX 200 since the start of the year with the Australia Plus fund losing 1.9% and the 20 fund losing 5.6% compared to market losses of 9.9%.
Performance of SGH Australia Plus and 20 funds versus ASX 200 since start of the year to 31 July 2020
