COVID hasn't changed everything - the contrarian way

The interesting thing about 2020 is that the short-term societal changes have blurred investors’ investment strategies, structures and views of longer-term investment opportunities.

What we know from history is this creates opportunity for the contrarian investor.

The original godfather of contrarian investing, Humphrey B. Neill noted that “it is easy to find something to go contrary to, but difficult to discover when everybody believes it”. He also noted that "when everybody thinks alike, everybody is likely to be wrong."

Now that’s not to say the investment movements seen in 2020 are wrong or without merit, but some of the panic selling seen in March has actually held meaning – there is value to be found.

This is really acute in non-banking sectors that were market darlings pre-COVID but currently find themselves in the outhouse such as infrastructure and listed property.

We highlight infrastructure and listed property because they are likely to benefit from government spending programs designed to reinvigorate the national economy over the longer term.

Long-dated projects will get brought forward and even with Victoria still in severe lockdown, recent data shows that some 70 plus-per cent of the national economy is open compared to the lows in late June, meaning listed property will start to see return to occupancies and new tenents.

That’s encouraging news, especially given that quality assets within these sectors have arguably been left oversold.

This creates opportunities for anyone willing to take a long-term view, and investment managers know that stocks with core capabilities are well positioned to deliver.

Given how much the infrastructure and listed property sectors have been sold-down, current prices represent a (near) ground-floor opportunity for long-term investors to ride the global recovery story.

InvestSMART’s Property and Infrastructure Portfolio also stands to benefit through its exposure to the VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (IFRA), and the SPDR Dow Jones Global Real Estate Fund (DJRE). Through these global ETFs, investors are also exposed to stocks in the telecommunications, transportation, and energy industries.

There’s a growing expectation among investment managers that local and global toll roads could return to previous peaks faster than expected, while airports will also recover in time. This outlook also bodes well for a handful of ASX-listed infrastructure stocks included in the InvestSMART Infrastructure and Property Portfolio, and a vaccine will do wonders for the sector’s medium-term fortunes.

For example, Sydney Airport stands to benefit from a progressive economic rebound as Victoria moves out of its second phase lockdown, and air travel resumes between Melbourne and Sydney.

Then there’s toll road operator Transurban, which despite being hit hard by lockdown in Victoria, has been given an ‘overweight’ for many years prior to the COVID-crisis, while rail freight operator Aurizon Holdings Ltd recently surged after declaring a 12 per cent rise in underlying net profit after tax. The portfolio also invests in gas infrastructure giant, APA Group which has one of the best consecutive growth records on the ASX.

Being a contrarian can be nerve-racking as you are going against the grain. But the question you need to ask is, has infrastructure and property changed forever because of COVID? Or is 2020 just teaching us that age old lesson that all event risk will eventually subside, and greener time will return?

Find out more about InvestSMART's Property and Infrastructure Portfolio here.