While recognising the challenges we’re all facing at present with the effect COVID-19 is having on global markets, the investment team at WCM remains committed to achieving the best outcome for investors.

Please see below an update from WCM on the areas of the market the team is focusing its attention.

Some thoughts on the recent market volatility, the pandemic, and our attitude/actions:

It is for periods just like this that we stay very close to the businesses we own, and would like to own. This attention gives us the confidence and patience to continue with the existing portfolio, but also allows the team to focus on attractive entry points in other companies we would love to own, which, for various reasons, have not made it into the portfolio previously.

Given our long-term approach (i.e., a minimum time horizon of 3–5 years), and our belief that the full ramifications of macro-related events—including the current COVID-19 pandemic—are unknowable, we are convinced that the most important, most valuable thing for us to focus on is owning businesses with solid balance sheets, in industries with long-term structural growth drivers, that are improving their competitive position, and possess strong, healthy cultures. Such firms are much more likely to navigate macro issues—yes, including the current COVID-19 pandemic—better than their peers and win in the long run.

As implied above, the positive aspect of market volatility—especially when driven by these kinds of macro episodes—is that it offers outstanding opportunities for bargains on high-quality companies that fit our investment criteria. Further, these volatile periods tend to refocus markets on structurally high-quality businesses (i.e., growing moats and strong, long-term tailwinds) rather than mediocre businesses benefitting from temporary/cyclical phenomena. That plays to our strengths. And with valuations having been reset, the ultimate return to stability will be accompanied by ample opportunity for strong long-term returns.

We aren’t going to wax eloquent about what we think is going to happen with COVID-19. It’s entirely unknowable, so we’re not going to waste time and energy trying to predict the future. We’ll simply use this market correction as an excellent period to put money to work. We’re chomping at the bit. And as you hopefully know, we are deliberate in our effort to deliver a lot less downside than the markets (a strong downside capture ratio). Although we are only about three months into the year, we are seeing the relative outperformance YTD reflect this effort.

With all of that said, below are some items and topics the team is discussing around the current environment:

• Historical, comparable events:
  • GFC [2008], 9/11 [2001], Market Crash [1987]
  • pandemics: H1N1 Flu [2009], Hong Kong Flu [1968], Asian Flu [1957], Spanish Flu [1918]
• Business models at risk:
  • travel
  • pockets of SaaS – the “recurring-ness” and stickiness of SaaS models could be tested; not all software is created equal and some are more critical than others
  • “New-age” businesses with high cash burn rates
  • capital intensive businesses
  • models reliant on capital markets
  • others?
• Business models that may lead in a recovery:mobile payments
  • food delivery
  • select healthcare
  • others?
• Which tailwinds and business models are most enduring/predictable in a period like this?
• Balance sheet health (leverage will be challenging)
• Broad impacts of COVID-19 on businesses and consumers
  • What are some potential long-term behavioral shifts as a result of recent events?
  • Long-term positives?
  • Long-term negatives?

While it is awfully easy to get swept up in the constant news (noise) flow, our team is working hard to keep their eye on the long term and to be on the lookout for the best investment opportunities available.

Sincerely,

The WCM Investment Management investment team.

Contact Us

If you have any questions please contact the Contango distribution team on 1300 001 750 or invest@contango.com.au.