Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 348

Douglass on coronavirus: 'Expect volatility but don't panic'

"Expect volatility but don't panic, would be my view, because before 12 months, I think we'll be looking back, and this event will have passed."

This is the view Magellan's Hamish Douglass delivered to the thousands of investors who packed Sydney's International Convention Centre on Friday night to hear his latest update.

With fears about the coronavirus pushing stocks closer to a bear market, Douglass adopted a relaxed tone, telling investors to sit tight and take a long-term view. He told the crowd of advisers, industry professionals, retail investors and students.

"Our best view is that this may be six times as serious as the seasonal flu.

"While [the virus] is going to affect a lot more people, I think the spread may well be less because of the extreme containment measures. But with the extreme containment measures is going to come a pretty sharp economic impact around the world, which will realistically be three to six months.

"During that period, I would expect a lot of share price volatility as people react to the headlines. I think if we look a little bit longer out, this flu or pandemic or whatever you want to describe it will have its consequences. But the economic effect is likely to pass very quickly."

Douglass avoided discussing the virus for much of the presentation, devoting his time on stage to how interest rates will affect equity valuations and the rise of the Chinese consumer.

But talk of the virus, which dominated headlines for the days leading up to the event, infected audience question time.

Magellan Global Fund Portfolio Holdings, 31/12/2019

Source: Morningstar Direct

'Buy the dips'

Douglass was more eager to share his view on opportunities in the market as global banks rush to slash interest rates to fight coronavirus.

"While people are panicking and very concerned about the short-term economic impact, what the central banks are doing, and I think they're going to go further here, is they're further reducing interest rates.

"So, when we come out of this, we're going to be even in a lower interest rate world, which is supportive of higher valuations. Once you've lowered, the cost of lifting interest rates is very high. This has a very interesting dynamic for valuations when people's panic stops.

"If there are any severe dips here, my advice to people would be buy, and just expect more volatility. You're very unlikely to pick the bottom of any of the sort of ups and downs. But I expect when we get some calm water, some of the businesses will be reflecting the low interest right, which is kind of a benefit to all this uncertainty."

Magellan sees opportunity in China

Investing in China is clearly on Douglass's mind following the Magellan Financial Group’s first direct investment into the rising global power, with a 6.5% holding in Chinese online platform Alibaba. It also invests in other Chinese-market linked companies such as coffee giant Starbucks and luxury French brand LVMH Moët Hennessy – Louis Vuitton.

On stocks within his own portfolio, Douglass acknowledged that things could get ugly in the short term, but insists he is doing nothing to fundamentally change the portfolio.

"Starbucks closed half their stores in China. It's just said it's going to have a severe impact on the China business in the next three months. We know that. Its share price has been affected somewhat. But in 12 months' time, it won't have any real impact on the long-term value of a Starbucks or a Louis Vuitton."

Within the Magellan Global Fund, Douglass has taken major bets on several US tech names including Microsoft, Facebook and Alphabet, and payments giants Mastercard and Visa.

Starbucks and Alibaba both provided personalised video presentations for the roadshow. Starbucks plans to open a new store every 15 hours in China between now and 2022, Starbucks Chief Executive Kevin Johnson told the audience.

Magellan Global, Asset Allocation, 2015 - 2019

Source: Morningstar Direct

None of the Magellan Global Fund's top 10 holdings (at 31 December 2019), excluding cash, has been spared from the virus. The worst hit is Facebook, down 16% over the last month. NASDAQ is down 16.5% for the month, and the SPDR S&P 500 ETF, a proxy for the S&P 500 Index, is down 13.8%.

Magellan Global has slowly reduced its cash position over the last two years, from highs of 18.35% in mid-2018 to just under 6% at the end of 2019.

 

Emma Rapaport is Editor of Morningstar.com.au. The author attended 'The Great Repression: Magellan Investor Evening Series' on 6 March 2020 as a guest of Magellan.

Hamish Douglass is Co-Founder, Chairman and Chief Investment Officer of Magellan Asset Management, a sponsor of Firstlinks.

 

banner

Most viewed in recent weeks

11 lessons from my lousy $50K profit on Afterpay

Afterpay listed at $1 in 2016 and traded recently at $70. How should an investor treat a small holding in a 70-bagger when each new level defies the experts? Should true believers let the profits run?

How much bigger can the virus bubble get?

Stocks have rallied hard creating a virus bubble, but will this run for years or collapse in a matter of months? The market is giving a second chance to leave so head for the exit before there's a rush.

Share trading is the new addiction

The ability to buy and sell cheaply and quickly in small parcels is both the biggest drawback and benefit of shares. But it encourages people who should not go near the market to use it as a casino.

What is happening with SMSFs? Part 1

Taking a realistic view of the median ‘operating expense’ of an SMSF shows they cost less to run than previously claimed. Look at this granular breakdown and see how the costs of running your SMSF compare.

New ways for listed funds to fix their price discounts

Running a fund should not become a gravy train for boards and investment managers. It is time to address the persistent discounts to NTA on LICs, and there is one especially exciting new structure.

Why are we convinced 'this time it's different'?

Investors tend to overstate the impact on investments when something significant happens and they assume the future will be different. COVID-19 has been dramatic, but is it really that unusual?

Latest Updates

Investment strategies

11 lessons from my lousy $50K profit on Afterpay

Afterpay listed at $1 in 2016 and traded recently at $70. How should an investor treat a small holding in a 70-bagger when each new level defies the experts? Should true believers let the profits run?

Shares

How did shares perform in FY20 and where to from here?

Compared with most years in the last decade, FY20 performed poorly due to the virus, and now dividends are falling. There are three things to watch this year as support policies are wound back.

Shares

Which companies will do well in the turmoil of 2020?

While the shutting of Australia’s borders to international travellers and quarantine measures is damaging to certain sectors of the economy, it is not uniformly negative for all companies.

Investment strategies

Six types of big data are unlocking real insights

Data science is increasingly embedded into the research process of investment teams with the resources to exploit new technologies. The way the data is integrated and interpreted is crucial.

Investing

Will value stocks benefit from the market's inflection point?

As the world gradually emerges from the aftermath of COVID-19, many are questioning if now is value’s time to shine? How can value stocks deliver outperformance in today’s environment?

Fixed interest

Less than 1% for 100 years: watch the price risk on long bonds

Do you think investors can only lose heavily on bonds if the credit defaults? When bondholders accept 0.88% for 100 years, there is great potential for serious pain somewhere along the journey.

Economy

Five industries profoundly changed by COVID-19

Even when the virus is finally contained, the business landscape will look very different. A critical issue is the ability of consumers to find product substitutes. Many people like what they find.

Exchange traded products

Wirecard shows not all ethical ETFs pass the smell test

The strictness of screening processes can vary between ethical ETFs, and many rely on indices without additional oversight. This can result in stock inclusions that may not pass the ethical ‘smell test’.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.