Questions and answers for DFMs from another Vaccine Monday; Buyers' tried and tested Asia picks
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Reaching the peak?
Another vaccine Monday for markets has filled in more pieces of the puzzle for allocators – but the path ahead remains uncertain.
Today it’s the turn of Moderna to announce positive initial results from phase three trials. The bar had been set pretty high by Pfizer and BioNTech last week; the Moderna vaccine’s 94.5 per cent efficacy rate vaults over it.
That has put paid to a few concerns that lingered on amid the euphoria last Monday. It strengthens the argument that the successful harnessing of mRNA techniques mean more than one vaccine is likely to succeed. Both the Pfizer and the Moderna vaccines use this strategy.
As it happens, Pfizer shares have fallen in pre-market trading, investors having noted there’s no longer a single viable solution. But the latest news has given another boost to ‘old normal’ shares. It’s added another 10 per cent to airlines, pubcos et al, and even the likes of European financials are up around 5 per cent apiece.
Today’s news also confirms that phrase 3 trial results are now arriving thick and fast – aided, ironically, by the accelerating spread of virus cases across the US.
From an investment-specific perspective, there remain some nagging issues. Last week we asked whether all the good news had been priced in immediately. Today shows there’s more to go, but it may be a case of diminishing returns from hereon in.
There’s certainly the potential for more positive headlines. Results from the likes of AstraZeneca and Johnson & Johnson – neither of which use the mRNA approach – are due before the end of the year. Their success would help iron out concerns over distribution and storage, although Moderna has gone some way on the latter front already. And on the therapeutic side, Regeneron could soon follow Eli Lilly in gaining approval for US use, too.
The question is what kind of results would now constitute a disappointment. Are two potential vaccine candidates enough to prompt a meaningful rotation - or do investors still need to see a success from Oxford/AstraZeneca? What would be the implication of a setback for either Pfizer or Moderna? Today’s news makes a retracement less likely; it might also suggest the big bounces are over. But a gradual shift towards more cyclical positioning could still be on the cards.
If it ain't broke
If days like today do prompt allocators to look again at emerging markets, and Asia in particular, DFMs have a readymade set of choices from which to choose. Our fund selection database shows their favoured equity picks in Asia ex-Japan have barely budged over the past two years.
Of those we mentioned in this piece from early 2019, the only notable shift has been a slight drop down the rankings for BlackRock: average performance in 2018 and 2019 caused some to lose faith, though it has rebounded well this year.
In its place is another old stager: Veritas Asian, whose qualities have seen several wealth managers put it back on their buy-lists – and in their portfolios – over the past 18 months.
Aside from that, there’s been little in the way of movement. In fact, of all the major equity sub-sectors, Asia ex-Japan has seen the least buying and selling activity year to date. That might be because some fund buyers are looking to more specific options, like China A-Shares offerings, for the first time.
It may also suggest they’re content to stick with what they know during a period where they’ve had more pressing concerns: specifically, how to get the best out of their developed market positions. That could yet change if Asia is perceived to be a big winner from the latest developments. In any case, in the coming weeks we’ll be taking a closer look at some of the big changes made by DFMs so far this year – in both equities and other asset classes.
Holding firm
Today’s developments also point towards the benefits of a barbell approach: tilting too heavily in favour of tech, or moving too far in the other direction, is probably the riskiest strategy of all at the moment.
So those selectors investigating which UK-based funds hold Moderna might have a wry smile at the results. Baillie Gifford Positive Change is more or less the only such fund to count the stock among its 10 largest positions. Which is fair enough: as of midday, the company is certainly meeting the ‘positive change’ criterion.
The fund of course complements that position with a range of tech holdings for which the fund house is better known: its top position is Tesla, and the likes of Taiwan Semiconductor are up there, too. But these aren’t the kind of ‘stay at home’ stocks that have been knocked again today – so in this particular case, the Edinburgh fund house is on the money again.
