9 June 2020

Market update: weathering the bull market

February and March saw torrential downpours, April scattered showers and May blistering sunshine; the British weather appears to have correlated remarkably well with the mood of the markets in 2020 thus far.

by James Godrich

Fund Manager


Whilst it is tempting to ask Carol Kirkwood from the BBC for a market forecast for the rest of the year, I think it might be the case that correlation doesn’t necessarily imply causation here.

It is pleasing to report that our direct equity holdings in both the UK and the US have weathered the storm fairly well so far this year. During May it was particularly encouraging to see that three relatively recent additions to the portfolio in PayPal, Games Workshop and Hargreaves Lansdown appeared at the top of the leader board.

Over the period, PayPal reported their first quarter results in which it announced more than 20 million net new active accounts, a 15% increase in payment transactions and $191bn in total payment volume. Hargreaves Lansdown similarly announced results that included nearly 100,000 net new clients bringing £4bn of net new assets onto the platform over the quarter. Games Workshop has been an astonishing performer year to date, with the shares having roughly doubled in the last 10 weeks prior; whilst the business released a short update at the end of April, there was little new detail to justify this share price move.

I tend to agree with Charlie Munger of Berkshire Hathaway, when he said that over the long term it is hard for a stock to earn more than the business that underlies it. Whilst I will rarely see a stock return similar to Games Workshop in such a short space of time, I hope that I can continue to report business performance similar to both of the former in due course.

Clearly, this will not always be the case and a number of the portfolio companies have faced significant challenges over the period, which their stock prices have fairly reflected. The largest global outsourced catering company, Compass Group have seen revenues in some of their business lines fall to zero – there is no use in offering food in sports stadiums without competition or fans for example. During the month, the business announced a £2bn equity placing and whilst I hope that this will allow them to take advantage and gain market share against smaller, less well-resourced peers in the post-pandemic world, I note comments from the CEO where even he conceded that Covid-19 completely changes the game. The business is on life support right now but I hope and believe at this stage it will come back and come back stronger.

It is against these game-changing economic developments that markets continue to move higher and even test record levels. This has clearly puzzled some commentators who argue that equity markets are acting irrationally. Whilst I have some sympathy with this view and wouldn’t be surprised to see markets retrench somewhat, I would note the late Sir John Templeton’s still relevant insight that, ‘Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria’. It still seems that pessimism is common and scepticism is rife...we should perhaps become more worried when Carol tells us that July and August will be a heatwave.

James Godrich, Fund Manager

James is the fund manager of the Coleman Street Investment portfolios


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