04 Apr Can I lose everything?
By Jean Strock AFA
We are experiencing a classic Black Swan event in the markets, defined as an event that is unexpected, has a major impact and is difficult to predict. Certainly we never foresaw New Zealand being in a state of emergency and lock down back in early February.
One concern I hear from clients is ‘can I lose everything?’
We don’t think so and here is why.
Our portfolios are extremely well diversified, across markets, asset classes and managers. Larger portfolios may contain more specialised funds such as Worldwide Healthcare, structured as an investment trust, listed in London but investing globally in pharmaceutical and biotechnology companies.
We also use several Australian unit trusts in our core portfolios, for example the Resolution Capital Global Property Securities Fund.
Let’s take a look at a few of the underlying stocks in these two investments to get a sense of this broad level of diversification.
Worldwide Healthcare Trust (WWH)
The top holding is Japanese company Takeda Pharmaceutical. Takeda focuses its medicine research and development on cancer treatments, neurologic and psychiatric diseases and gastrointestinal disorders such as Coeliac and Inflammatory bowel disease. It also has a vaccine in development for Dengue Fever, a tropical disease which causes an estimated 390 million infections each year and Covid 19. Needless to say the share price is holding up well.
Another large holding is Alexion Pharmaceuticals which makes medicines for the treatment of rare autoimmune diseases such as Myasthenia Gravis and atypical haemolytic uraemic syndrome.
Hong Kong listed CanSino Biologics also has a Covid 19 vaccine in clinical trials but is active in vaccine research and development more generally. It was the top performer in Worldwide Healthcare’s portfolio during February.
Resolution Capital Global Property Securities specialises in global listed property and despite the current sell off remains another great diversifier for the portfolios. Top holding Prologis provides logistics real estate solutions such as warehousing to maintain global supply chains. Customers include BMW, Amazon and DHL.
US company Healthpeak Properties is a real estate investment trust specialising in healthcare real estate including medical offices, senior housing (retirement villages) and life science campuses. An example life science property is the Hartwell Innovation campus in Lexington Massachusetts, adjacent to the MIT Lincoln Laboratory which provides laboratories, offices and research space.
In Asia Sun Hung Kai Properties owns residential, retail, hotel and office buildings in Hong Kong and mainland China cities.
We allocate small amounts to funds such as Resolution and Worldwide Healthcare and so the failure of any underlying company is unlikely to have a profound effect on the portfolio. It is hard to envision the loss of all of these successful global and domestic companies although all will be affected by bouts of extreme fear and negativity such as we are experiencing now.
Undoubtedly these fund managers will be actively seeking out bargains and ready to rebound when we have a way through the Covid 19 pandemic.
The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate personalised financial advice from a qualified Authorised Financial Adviser to suit your individual circumstances.