Resilient Portfolios

Why COVID-19 may prompt a change of mindset for UK income investors

Ben Needham, manager of the UK Equity Income strategy, explains why the current pandemic, and all of the economic challenges it has brought with it, may persuade companies to act more prudently in future. He discusses why a focus on quality companies with sustainable cashflows can prove a significantly more attractive investment than cyclical businesses – many of whom are currently facing the consequences of overly aggressive capital allocation strategies.

May 20, 2020

13 minutes

In a new paper we discuss how early action by policymakers combined with the demographic make-up of emerging markets mean many appear relatively resilient in the face of the COVID-19 pandemic.

Fundamental improvements in recent years have placed firm foundations under emerging market economies. This should allow them to withstand the current shock and make a sharp recovery as the global effects of COVID-19 gradually fade.

Even under a cautious scenario for the global economic recovery, we estimate that the vast majority of emerging markets can weather the storm, especially taking into account the availability of liquidity support from the IMF.

We believe that valuations, even in several distressed markets, offer investors attractive potential upside, given the recent market dislocation.

However, paths to recovery will be both varied and uneven, given the huge diversity of this investment universe. Careful bottom-up selection will be vital for alpha generation.

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Authored by

Peter Eerdmans

Head of Fixed Income

Roger Mark


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