Shareholders should not expect to see a share price recovery if companies receive a bailout because of COVID-19, Munro Partners believes.
Munro’s chief investment officer, Nick Griffin, said. several Australian and New Zealand companies such as Virgin Australia, Kathmandu and Ooh! Media had been forced to go to seek a bailout after the businesses were hit.
“They are tapping the market because they need equity which is putting pressure on the equity market and sucks up capital,” Griffin said.
“The important thing to remember as a shareholder is that we are the last people anyone is thinking about. The bailout is there to save jobs, to save businesses, it is not there to save the shareholders.
“Shareholders are not the problem, this is a health crisis, this is a solvency crisis and shareholders will have to pay their bit.”
Griffin gave the example of UK bank Royal Bank of Scotland which received a Government bailout after the Global Financial Crisis but had never seen its shares recover and was ‘hugely dilutionary’ to shareholders.
When companies had come out of the crisis, this did not mean it was the end of the problem, Griffin said, as they would be deterred from paying out dividends and share buybacks.
He said the Munro Global Growth fund currently had a big focus on technology, specifically digital enterprise, e-commerce, digital payments, high performance computing (semiconductors), innovative health and big data companies.
Top holdings included Amazon, Microsoft, Alibaba, Alphabet and ASML which he said he had held prior to the crisis. The fund was currently around 50% invested and he said he had the “full intention” of being fully invested again in the future.
“We are focusing on those companies which we think will be better off after the crisis and will be better off over the next three to five years.
“Big tech companies have got stronger, they have the best balance sheets and we need them more than ever before, small businesses and the Main St guys are the ones who are suffering most.”
Instead, they had exited positions in luxury goods and aerospace stocks and were avoiding the financial, restaurant and autos sectors.
The Munro Global Growth fund has returned 13.2% over one year to 31 March, 2020 versus returns of 2.6% by its MSCI ACWI benchmark, according to FE Analytics.
Performance of Munro Global Growth fund v MSCI ACWI index over one year to 31 March 2020
