Rathbones global equity manager James Thomson completed his largest ever cash deployment as markets sold off in the coronavirus crisis, arguing that now is the time to position for a recovery that will be “astounding in its speed and ferocity”. 
The opening quarter of 2020 has been a brutal one for investors, with stocks around the globe moving into bear market territory after large parts of the economy shut down to prevent the spread of the coronavirus outbreak.
But the FE fundinfo Alpha Manager, who runs the £1.9bn Rathbone Global Opportunities fund, has been buying into the market over this time in the belief that the sharp downturn will just as quickly lead into a surging recovery.
In mid-February, which is when the coronavirus sell-off started, the fund’s cash position stood at around 7 per cent thanks to continued inflows but over the past few weeks this has been brought below 1 per cent as Thomson topped up many of his holdings.
Performance of equity markets in 2020
Source: FE Analytics
“That is the largest deployment of cash that I've ever undertaken in the fund’s history,” Thomson said.
“Ultimately, my clients want the fund to be invested in equities - that's why they've given it money. I'm not trying to be cute and trying to pick winners, because I think it's very difficult to be sure on that. The sell-off was a catalyst that said to me: ‘Look, if I don't get this invested into a broad spectrum of holdings in the fund now, what other catalysts am I waiting for?’
“I believe in the long-term futures of these companies. These are gold-standard, world-leading franchises are doing other products or services that are difficult to copy and I do believe that they are resilient, even in a major air pocket.”
However, the manager stressed that he is not calling the bottom of the market and warned that investors can expect further volatility from here as the world continues to grapple with the ongoing coronavirus pandemic and the global recession that widespread lockdowns will cause.
Most equity funds have suffered losses in 2020 so far and Rathbone Global Opportunities is down some 6.91 per cent. However, this is significantly better than the losses of more than 15 per cent made by its average peer in the IA Global sector and the FTSE World index.
While there could be the temptation to hold onto cash until the outlook improves, Thomson argued that this could mean Rathbone Global Opportunities would miss much of the eventual upside.
“The stimulus that's being injected by central banks around the world is not going to stop the virus but I think it will outlast the virus and we really need to prepare the fund for that now. The rally, when it comes, will be astounding in its speed and ferocity. If people are too focused on identifying a bottom in the market, I think they'll end up missing the very significant upside that eventually will come,” he said.
“My problem is I just don't know what that timing is going to be. But I'm willing to withstand some short-term stock price pain if required because ultimately I think the long-term prize is so attractive.”
Performance of fund vs sector during 2020
Source: FE Analytics
Rathbone Global Opportunities’ outperformance over the coronavirus crisis can be attributed in part to the fact that it does not hold many of the areas that were hit hardest by the sell-off, such as airlines, cruise operators, car manufacturers, oil & gas companies, miners and banks.
In addition, Thomson has seen some stocks perform strongly in recent weeks.
“I would point to what I'm calling sort of ‘corona-safer havens’ and that those would be businesses like Netflix, Amazon, Costco and Ocado. Some of these are in my more aggressive bucket of stocks but they have actually become quite defensive,” he said.
Although the manager cannot know the exact timing of when the market will turn, he said that history can offer some insight into past earnings shocks and what will happen from here.
He pointed out that World Trade Center attacks of 2001 also led to “a very severe shock to earnings expectations” and said the discounting timeline for coronavirus could be similar.
Thomson believes that the bear market will not abate until there has been an adjustment in earnings expectations to indicate that the policy response to coronavirus has been sufficient. In the case of 9/11, it took two or three months for investors to correctly calibrate and then discount the impact of the shock to earnings.
“Although the impact is more severe, but the timeline for understanding the impact could be the same,” he added. “And that's what really matters: as soon as we're able to accurately quantify the impact, we can discount it and start to build a base from there.”
Performance of funds vs sector under Thomson
Source: FE Analytics
Thomson has managed the Rathbone Global Opportunities fund since November 2003, over which time it has made a total return of 596.87 per cent. This ranks it third out of 96 funds in the IA Global sector, where the average return over this period has been 215.66 per cent.
It has an ongoing charges figure (OCF) of 0.78 per cent.