The Journey is the Destination

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“There’s a lot of baggage that comes with us.  But it’s like Louis Vuitton baggage.  You always want it.”

                                                                                                                              Kim Kardashian

It certainly looks like we have a lot of baggage.  The US elections are imminent.  Brexit is about to happen in earnest.  US markets are at all-time highs despite the pandemic.  The major vaccine trials will report in a matter of weeks.  The Fed no longer has an inflation target.  The top 5 digital and technology companies, including a number we have been invested in for years, now account for 25% of the S&P.  The Kardashians are ending and Kim has announced she is taking a break from Facebook and Instagram.  Where is this journey taking us?

Our World Stars Global Equity strategy has performed strongly this year, up 14.8% year to date despite the baggage as you can see in the performance summary below.  While we agree with Kim Kardashian about Louis Vuitton, LVMH has not done as well this year because it is held back by consumers affected by the uncertainty of the pandemic and the impossibility of travel.  Its Chinese business has been strong and every indication is that underlying demand is unchanged.

Our journey to generating value over the long-term is guided by the fundamentals.  That is why we continue to be positive about our portfolios and the companies we have invested in.  They have the quality to prosper over time.  Some are doing well like the digital platforms that are helping to keep our economies, businesses and social interactions going during the pandemic, while others are held-up by consumer spending and travel like LVMH or Essilor or by hospital shutdowns and interruptions to elective procedures as Medtronic or Becton Dickinson.  They all have the balance sheets to get through the difficulties and to turn the set back into an opportunity, as several have done by making acquisitions at lower prices.  Their valuations, while in some cases at higher ends of historical ranges, represent great value in the long-term and we are confident in their prospects for growth and value generation over the long-term.  

At the same time we recognize the risks.  Politically the US elections will have an impact on markets and economies.  If the incumbent loses and the majority in Congress changes as is currently indicated by the polls, the period between the election and the inauguration of the next president and Congress could lead to significant uncertainty and volatility.  We think any such impact should be short-lived and would represent an opportunity.

Economically the biggest impact will come from the course of the Covid-19 pandemic and the outcome of the vaccine trials. As we outlined in our insight in July, we are positive about the prospects for vaccines, in particular the mRNA vaccines in development by Pfizer/BioNTech and Moderna.  We expect results from the Phase 3 trials in the next few weeks and will provide an update on them in our insight next month.  It is clear the impact will be with us for the next 12-18 months as the second and further waves of the disease take place and as we learn about the likelihood of vaccines.  It does appear that the issue has been complicated by politics as doubt about the safety and approval processes of the vaccines can only delay their widespread use and the positive effect it should have.  

Different countries are at different stages of coping with the disease.  China and other major countries in Asia seem to have it under control with the more stringent measures they have taken.  In the US and Europe it seems as if countries like Germany, which have the ability to provide testing and health care in such a way as to enable people to go about most of their daily activities, are showing the way in which we can head to stabilization and recovery.

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