Companies’ earnings estimates are “too high” according to Bell Asset Management chief investment officer Ned Bell, as the long-term impact of COVID-19 on businesses remains unknown.
In a Bloomberg webinar, Bell said he expected the economy would still be feeling the effects of the pandemic until the second half of 2021.
Many companies had already deferred their earnings guidance as the pandemic had caused uncertainty as to what the future held for them as a result of social distancing and travel restrictions.
“How many companies will be able to survive COVID-19? The market is pricing in a seamless recovery and I think that seems unlikely. I would not expect things to improve until the second half of 2021,” he said.
“Volatility will pick up in the second half of the 2020 as companies start to put out guidance about the impact of COVID-19 to the market and how the business is doing. I think earnings estimates for the next year are too high.”
Bell said he believed the best opportunities were in global small and mid-cap (SMID) stocks if investors had a long-term time horizon. Among its equity funds, the company runs a Global Emerging Companies fund which invests in globally-diversified small and mid-cap companies.
“We like global small and mid-caps and think they offer the best opportunity. For investors who have a three to five-year time horizon then an allocation to global SMID makes sense,” he said.
“Active management hasn’t been rewarded as much lately, there will be a lot more opportunities for active managers to add value in the next five years.”
According to FE Analytics, within the Australian Core Strategies universe, the Bell Global Emerging Companies fund returned 3.67% over one year to 30 June, 2020, versus returns by the global small and mid-cap sector average of 0.25%.
Performance of Bell Global Emerging Companies fund versus global small and mid-cap sector over one year to 30 June 2020
