Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Alistair Wittet. He is manager of the Comgest Growth Europe Fund. Hello.
Alistair Wittet: Good afternoon.
Black: So, I guess the clue is in the name. You're looking at Europe at the moment. And that was one of the first places outside of Asia to be affected by the coronavirus pandemic. What's the impact been on the fund over the past few months?
Wittet: So, the fund has proved to be incredibly defensive. Actually, remarkably, given what's happened, the fund is up year-to-date. And that's largely because of two factors. On the one hand, the market itself has recovered a lot over the past couple of months and we can maybe come back to the reasons behind that. But there's definitely been over the last, let's say, two-and-a-half months a big rebound and an increase in optimism about the outlook for Europe. And on the other hand, the sorts of companies that we invest in tend to be the companies that are least impacted by the likes of Covid-19 because they are in many cases providing very essential services like healthcare or food or supermarkets, all because while they are heavily impacted, they have very substantial safety mechanisms, whether that be a strong cash pile, whether it be a very, very active management force, et cetera. So, on the whole, our companies have fared better than the markets and that's led to quite a substantial outperformance since the start of the year. And as I said, the fund is up so far.
Black: And here, you say we are now seeing stock markets start to recover. Is that going to continue, or do you think there is a risk to performance if there is a second wave?
Wittet: I think there's been a lot of optimism. As markets have – on the one hand, as countries started talking about opening and then on the other, once they've opened and when we started to see the data come through, there's a very interesting data point this morning. Inditex, the largest clothing retailer in the world, they own Zara, Massimo Dutti, those sorts of brands, they mentioned that in markets like China, Korea, Japan, their sales are back to very close to levels seen last year. We've also had updates from the likes of Primark in the UK and Europe which is a store-based only retailer.
So, it's a very interesting gauge for what's happening on the high street. And they've also talked about sales in many of their stores above that of last year. So, there's been quite a few data points that have pointed to reopening being met with quite a lot of enthusiasm by consumers and they have come back and spent. I think the big question is whether this is sustainable. And the OECD came out this morning with quite a dire outlook for the economy under two scenarios; one, where there is a second lockdown and the other where isn't and in both cases you are looking at 2021 GDP substantially below 2019. So, I think there is a lot of optimism in the market today, but I think there's a lot of reason to still be somewhat cautious.
Black: And have you made any changes to your portfolio this year in light of what's happening?
Wittet: So, at the margin a context which is quite specific to our portfolio and to our investment style is that the last two to three years have seen valuations for quality growth stocks go up quite substantially and that has led us for valuation reasons to reduce our exposure to those names and to own, let's say, some slightly less dynamic growth companies but with much more reasonable valuations. What we were able to do in the sell-off in February and in March was start to re-orientate the portfolio back towards those growth names. More recently, we haven't been doing a lot because valuations have come back up again and that window for opportunity closed relatively quickly.
Black: So, that is it, your remit is growth. So, I'm quite surprised to hear you talking about defensive names in the portfolio and supermarkets and healthcare stocks you are typically drawn to.
Wittet: Yes, because you can find defensive growth. There's quite a lot of sectors of the economy where you do get very strong defensive qualities and very strong growth and healthcare is an excellent example of it where healthcare spending globally has been growing for a very long time. I think in the US there's not been a down year since 1960. So, it's an extremely defensive sector. It's also a growing sector and the best companies within those sectors can leverage that growth with unique products, unique R&D with unique reach to market and deliver very strong growth. And even some of the largest healthcare names that you would have thought are kind of ex-growth, the companies like Roche in the pharmaceutical sector is delivering high single digit growth. So, there's still growth in these sectors.
Black: Alistair, thank you so much for your time. For Morningstar, I'm Holly Black.
