Political uncertainty will continue in 2020, but the rise of the electric car and a change in sentiment towards healthcare shares could provide relief for investors, according to the manager of the Aviva Investors Global Equity Income fund.
Richard Saldanha said the performance of auto and pharmaceutical companies over the longer-term are not as impacted by politics as are other sectors, and so offer investors an element of safety in 2020.
He said: "It’s set to be another year dominated by politics. The US election in November is likely to be the other major political event.
"Expect macroeconomic headlines to again dominate over microeconomic ones for the most part, although we still think it pays for investors to focus on the underlying fundamentals.
"Investors may look back on 2019 as a wonderfully benign year for global equities, with markets hitting new highs, despite fears of an economic slowdown and trade tensions bubbling under the surface."
He said one potential area of value for investors was technology companies that supplied car manufacturers.
Mr Saldanha said: "The auto sector was certainly under pressure and remains a tough area for investors to navigate, particularly given the required shifts of existing internal combustion engine fleets to hybrid and electric vehicles, with likely heavy fines for those whose fleets do not comply with tougher emissions standards.
"Perhaps unsurprisingly, faced with the burden of declining sales and higher research and development costs as a result of these technological changes, auto companies are looking at ways to consolidate, either through platform tie-ups or outright mergers.
"We think this trend is set to continue, but investors should look at all parts of the electric vehicle value chain, from battery manufacturers through to the tech companies which supply the semiconductors that are going to be increasingly used in these next generation vehicles."
He added that investors were nervous about the impact of the US presidential election on healthcare companies, as they feared certain election results could lead to lower profits for pharmaceutical companies.
Mr Saldanha said: "Healthcare stocks endured a tough 2019, with increased focus around drug pricing and political headlines around the ‘Medicare for all’ policy advocated by Democrat candidates Elizabeth Warren and Bernie Sanders causing many investors to remain on the sidelines.
"While we don’t expect these headlines to abate in the build-up to the US elections, there could be an opportunity for long-term investors who are willing to stomach some of this political risk in the short-term.
"Health insurance companies - who are increasingly focused on using data to drive better patient outcomes - are one example, as are pharma companies that have innovative pipelines in therapy areas with unmet needs which should avoid some of the pricing pressures many generic drug companies are facing."
The Aviva Investors Global Equity Income fund has returned 12.1 per cent over the past year, just shy of its sector, the IA Global Equity Income, which returned 12.7 per cent.
david.thorpe@ft.com
