Chief investment officer Hamish Douglass and portfolio manager Stefan Marcionetti said in an announcement to the Australian Securities Exchange (ASX) that it had opted to increase the defensiveness of the $12 billion portfolio in light of the COVID-19 volatility.
They said the Magellan Global portfolio had zero exposure to struggling and vulnerable sectors such as banks, energy, travel, airlines or property trusts and had no direct exposure to emerging markets other than China and only ‘modest’ indirect exposure to the region.
A sector the team was monitoring, however, was its exposure to restaurants which were likely to be hit by the closures caused by COVID-19 as people isolate themselves in their home. Under new rules, restaurants and café were either closed or only available for takeaway business.
Shares in McDonalds had fallen 31% since the start of the year to 23 March while Starbucks had fallen 36% over the same period. Yum! Brands, which operates firms such as KFC and Pizza Hut, fell 45%.
“Our three restaurant companies (McDonalds, Starbucks and Yum! Brands) face a challenging demand situation over the next two to six months as the world shuts down. Post this slump in demand, these businesses should recover strongly and prove defensive in the face of a downturn.
“Needless to say, we are monitoring these investments closely given the unusual nature of the situation, which will severely impact their businesses over the next two to six months. We remain of the view that these are some of the best businesses in the world and are likely to rebound when the virus passes. We note that each of them has a strong drive-through business that is likely to remain open.”
Holdings which the firm expected to prove ‘resilient’ included Swiss pharmaceutical Novartis, consumer staple Nestle and technology firms Microsoft, Alibaba and Tencent. Other cyclical firms such as Alphabet and Facebook, Visa and Mastercard would be likely to ‘weather the downturn’ due to their financial strength and be likely to participate strongly in a recovery.
“This is a complex, fast-moving and unprecedented situation and we will continue to manage the portfolio to protect the capital of investors. We believe the portfolio is positioned to do this,” it said.
The Magellan Global fund has lost 5.5% since the start of 2020 to 23 March v losses of 16% by its MSCI World index
