'Unemployment will be higher, activity lower'

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Lex Hall: Hi, I'm Lex Hall for Morningstar. Today, I'm joined by Mark Robertson. He's a Portfolio Manager and Head of Multi-Strategy at Aviva Investors. He's joining us from London. We're going to talk about some of his thoughts on the economic recovery, what that will look like. We're going to talk about some themes where he sees a bit of promise. And we're also going to talk about some portfolio protection and what you can do to perhaps bolster what you hold. G’day, Mark. Thanks for joining us at Morningstar. Mark Robertson: Thanks, Lex. Nice to be here. Hall: All right. I suppose, Mark, the burning question that I have, and many people have is here in Australia people are saying end of September what's going to happen when all this government props, all these subsidies are suddenly withdrawn. How do you think how cautious should investors be about that? Robertson: It's going to be an interesting one, isn't it, because you're also starting to potentially come into what we commonly term as the second wave, particularly in the Northern Hemisphere we've had this period where it felt almost unreal in a sense. We know that the huge economic impact from the lockdowns, but they have been offset, softened if you like, by these government programs. So, an open question, what does it look like when they roll off? Unemployment we know will be much higher, activity will be much lower. That's going to have a pretty negative impact on household incomes, household spending. So, this idea of we're sort of through it and the recovery that we've seen in asset markets is a reflection of what we can expect from the economy, I think is going to be challenged. Hall: Let's talk about some areas you like. You mentioned tech in particular. And you say that the coronavirus and you're not the only one I suppose who says that the coronavirus has extended the tech revolution that we're seeing and by that we mean working from home. But what other things are you sort of alluding to there? Robertson: Yeah. I mean, working from home is a big obviously and that's not just about employees needing to have their hardware, et cetera, at home, but it's also about the need for companies to operate their businesses from the cloud and you'll see a lot more of that. Obviously, the service-on-demand, software-as-a-service type of dynamics. But also, around the need for fast broadband, the move to 5G and the 5G rollout and there's obviously some interesting geopolitical tensions to that one as well. Hall: You alluded to China there too. What do you – if I'm not wrong you sort of see the divide between China and the West widening throughout the rest of the year and we obviously face a turbulent, even more turbulent, arguably, end to the year what with the US election coming up – what do you think about that? Robertson: Yes, I think that's going to be one of the – and it's no secret that one issue that the two houses or the two sides of the political spectrum that US can agree on is that China has been perceived to be a bad actor in some ways in terms of intellectual property theft, and I think that will continue, that we will see, particularly from the US, a continued push to exclude Chinese companies from the next generation 5G rollout and then we'll have to make because of course there a number of countries, particularly in the emerging world are sometimes or African countries that rely on the tech that China provides because of cost advantages it enjoys. Hall: Finally, let's talk about protecting your portfolio. What do you think in this era of stock picking, this era being the "coronavirus era", let's say, finding strategies that can protect your portfolio? How do you go about that? Robertson: Yeah, and it's a big challenge for everyone running multi-asset portfolios who have had the benefit of that equity/bond correlation where bonds will come and save you, so you can start thinking about where else you can look. We've been developing strategies in the currency space. So, we think there are vulnerabilities in the currency, and we want to be short those currencies. We've been also been developing strategies in equity space where we like to isolate, say, the quality factor within equity markets. So, an example of that might be looking within the US more of a mid-cap equity space to identify those names, very strong balance sheets, good cash flow where we're not going to be challenged in a more negative credit environment, for example, and then we long a basket of those names and short the broad index against them. Hall: What sort of sectors are you talking about when you talk about going long? Robertson: So, at the moment, through the nature of the model that we run to identify those strong balance sheet names, we do see a lot of tech exposure coming through there in that basket as well which is quite interesting. It does highlight the strong cash generative properties a lot of these upcoming tech companies also have. Hall: Are there any sectors that you feel that you sort of have to write off or leave by the wayside? Travel, for example, is that something that you're avoiding? Robertson: Yeah, and indeed, when we look into various markets, whether it'd be the property market, the REITs market and we tend to not own a lot of office space for obvious reasons or in the past we haven't owned a lot of retail in that space. And indeed, if you look into broad equity markets, we're trying to build strategies where we tend to not have, like you say, entertainment or leisure in there at the moment. Open question on airlines that's come up as a thematic. Should we be looking at airlines? And obviously they along with a lot of the other parts of the sector remarkably have undergone a very sharp rally recently. But we think they're very challenged still. So, we haven't gone there.

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