InvestSMART

COVID hasn't changed everything - the contrarian way

2020 has been quite the educational year. We have learnt new terms (social distancing), new ways of living (virtually) and that short-term investing can be 'exciting' (tech stocks, buy now pay later etc).
By · 17 Sep 2020
By ·
17 Sep 2020
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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.

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Evan Lucas
Evan Lucas
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Frequently Asked Questions about this Article…

Contrarian investing involves going against prevailing market trends. In the current market, this strategy is relevant as many sectors, like infrastructure and listed property, have been oversold due to short-term societal changes, creating potential opportunities for long-term investors.

Infrastructure and listed property sectors are seen as good opportunities because they are likely to benefit from government spending programs aimed at economic recovery. Despite being oversold, these sectors have quality assets that are expected to recover as the economy reopens.

Investors can benefit from the global recovery story by investing in sectors like infrastructure and listed property, which are expected to rebound as economies reopen. Current prices in these sectors represent a near ground-floor opportunity for long-term growth.

ETFs like the VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (IFRA) and the SPDR Dow Jones Global Real Estate Fund (DJRE) provide exposure to global stocks in telecommunications, transportation, and energy industries, enhancing the diversification and potential returns of InvestSMART’s Property and Infrastructure Portfolio.

The outlook for toll roads and airports is positive, with expectations that they could return to previous peaks faster than anticipated. This is due to the gradual reopening of economies and the potential impact of a COVID-19 vaccine on travel and transportation sectors.

Sydney Airport is expected to benefit from the economic rebound as air travel resumes, particularly between major cities like Melbourne and Sydney, following the easing of lockdown restrictions in Victoria.

Notable companies in the portfolio include Transurban, a toll road operator, Aurizon Holdings Ltd, a rail freight operator, and APA Group, a gas infrastructure giant. These companies are well-positioned to benefit from the economic recovery.

While investing in these sectors during the pandemic can be nerve-racking due to market volatility, the long-term view suggests that these sectors will recover as event risks subside. Investors should consider whether the changes are permanent or temporary.