Brendan Wood International
TopGunSM Press

SHAREHOLDER CONFIDENCE NUMBERS … STABLE

March 24th, 2020 by TopGun Press

For Immediate Release – New York, NY, March 24th, 2020 (TopGunsm Press)

Over the last few days the investor Panel has stabilized its positions regarding ownership convictions and timing. Many institutional portfolio managers report that they are well underway, buying select names.

America can do two things at the same time says the President, namely strategically fight the virus and get large parts of the nation back to work. These remarks filled a vacuum on how long the US lockdown would continue.

Hard to say what effect this had/will had on investor confidence but it was an aggressive first. Saying that the administration cannot tolerate the cure becoming worse than the disease, signaled an end in sight, albeit in Trump’s view.

Investors in the Panel have fixed their expectations between three and six months. They may well be right. The administration’s calendar appears somewhat more aggressive.

Despite significant price drops in some of these names, since February 1st, 2020, investors report their strongest “commitment to own” scores for the companies below. These companies were rated TopGuns on the BWI Shareholder Confidence Index throughout 2019. Institutional Investors and Investment Advisors report that arbitrary index selling and redemptions have taken a toll on several companies which are ranked the best run companies in the world by the BWI Panel.

Alphabet Inc
Amazon.com Inc.
Microsoft Corp.
Salesforce.com
UnitedHealth Group Inc

Investor Responses:

1) Are you planning to be a net buyer in the near term 3 months? (Net buyer means own more $ in equities than you do today.)

Yes = 89% (87% last week)
No = 11% (13% last week)

2) Will you be buying using cash reserves or switching existing positions into higher quality names that were overpriced but have become cheaper?

Cash Reserves = 36% (37% last week)
Switching Existing Positions into Higher Quality Names = 53% (50% last week)

3) How long do you think that decreasing real spending, lower earnings and supply chain issues directly caused by Coronavirus will prevail as deterrents to investing?

1 Month = 0% (0% last week)
3 Months = 45% (46% last week)
6 Months = 44% (41% last week)
1 Year = 11% (13% last week)

4) Will markets/prices come back to January 2020 levels? 0-100%

Yes = 87% (88% last week)
No = 13% (12% last week)

5) How long will this recovery take?

1 Month = 1% (1% last week)
3 Months = 40% (47% last week)
6 Months = 40% (37% last week)
12 Months = 11% (10% last week)
12-18 Months = 8% (5% last week)

6) How do you rate the future effect of a change in the US administration from Trump to a democrat in November as a market performance risk 0-100%? (Risk of a negative impact on prices)

Yes = 62% (67% last week)
No = 38% (33% last week)
Average Level of added risk = 46% (47% last week)

TYPICAL INVESTOR COMMENTARY:

“Yes, I am a net buyer, probably closer to the back end of three months.”

“We have been buying stocks and rotating positions after the market was 20% down. We have found the decline in the stock market an opportunity to buy quality names at cheap prices. We believe history rewards investors who do not panic and take advantage of opportunities.”

“I could see a scenario where humanity in North America sees a light at the end of the tunnel in two to three weeks from now. Hopefully, we see that, because of all of the measures that have been taken, like quarantines and social distancing, the case numbers plateau and decline. I think that is a time-frame that you will be able to see the signs of the beginning of a recovery. The numbers are going to ramp-up over the next two weeks, for sure, because the system is really just starting to test people in a big way. If the numbers start to drop in three weeks, a sense of calm will return and the markets will begin to rally. The wall of worry will begin to decline.”

“We don’t have a light at the end of the tunnel today. It is a bit of a no-man’s land right now.”

“I’d be a seller if we got back to the January 2020 levels in the market. I’d back into my shorts. But, everything is dynamic right now. What happens to risk appetite and sentiment? It has been destroyed, but, when we see the end, can we bring back investors when unemployment is at double-digit figures?”

“For the first time in the last year we see the possibility of President Trump losing the election. His re-election will be based on his leadership during this crisis and how fast the economy starts running again. If a Democrat wins in November, a lot of business-friendly agreements will be reversed.”

“We thought the numbers coming out of 2008, in terms of what governments did, were gigantic. What’s happening today is astounding. Its makes us worry about what’s going to happen two years from now when the dust settles. What will the government’s balance sheet look like? As taxpayers, that’s our balance sheet. It is unprecedented.”

“Going into zero liquidity on the buy side, driven by large hedge funds liquidating positions, calibrating positions and that has triggered a sell-off that was much bigger than the economic root causes. So this is my explanation as to why the market over-reacted and it reacted before the earnings expectations were revised downward. It’s really the tail wagging the dog and not the other way around. In terms of real economic impact, my first estimate was it was quite low. I estimated 5% impact on GDP based on what happened in China. I see in Europe that we are reacting too slowly so there will be a big real-world impact. Not in big industries. I think they can they can make it, but amongst small, self employed people, small businesses will feel a large impact, particularly on the structure of the European economy.”

“We are rotating our positions into the quality names as opposed to using cash.”

“We believe the market will eventually reach January 2020 levels, but not for at least 12 months.”

“With respect to the United States Presidential election in November, there have been some mis-steps by the current Administration that may be highlighted by the Democrats. Hopefully, the Democrats don’t use the election as a way to stall COVID-19 initiatives that need to be approved in a hurry, like they did on Sunday night. That was not good.”

“I think the COVID-19 matter will have an impact on the US Presidential election this fall. If, at the time of the election, when the debates are wrapping up, we are seeing the market having somewhat recovered because the Coronavirus is under control, I think US President Trump has a shot to be re-elected. If it spines out-of-control, his opponents are going to say he botched it. Then, he has a problem.”

“We are almost certainly going to get a new President who is a little less business friendly. On the flip side it will be somebody who is probably a bit more aligned with the rest of the world.  In terms of the We do not see the same response, in terms of a lockdown in North America, that you’ve seen in some places like China and a couple of other places. I am not overly optimistic about trying to curb the growth of this in North America because, in China and these other places, it is a different culture. It is a different social set-up that you can try and contain it a little bit better. However, when you start to ask people to do things that might infringe on their personal freedoms, people rebel. North America is still behind the curve, in my personal opinion. I wonder if this would feel more real if they were to start putting out the police and the military more visibly in public areas. I am not saying go all China by having the military everywhere and sending drones around. But, just to have them out reminding people to stay inside.”

“Everyone is scrambling because their pension liabilities are going through the roof with the decline in interest rates, their equities are losing value and even bonds are selling off. Our clients have all sorts of issues, but we aren’t one of them yet. We had a high cash balance going into this downturn, but not nearly enough to impact the decline that has happened. We didn’t predict the shutdown of the North American economy. We are finding it difficult to find stocks to buy that we would be excited about on the equity side. But, we have done some buying. We realize that we are never going to pick the bottom. We will look for certain indicators of that and certain stocks that we like. We’re not sure that we are at the low today, relative to the next three to six months. That’s where the difficulty comes in. That said, we believe that we will be at a higher level 12 months from now. As a discounting mechanism, a stock in the market, overall, is trying to encapsulate the probability weighting of all the potential outcomes that could happen. In normal times, that’s a fairly narrow range. But, right now, because we don’t know the duration of the curtailment of economic activity, the possible outcomes for any individual stock or the market, overall, is very wide. That’s why you get the volatility. Once there is a sense of the duration, you can start to prioritize where you want to invest capital. Over the last week, we have gone through all of our holdings to review their balance sheets, their liquidity and whether or not they can survive the next two to three months. For example, in some cases, for some retailers there will be no sales. We’re also looking at secondary effects, like on REITs. So, who has exposure to them, credit-wise? The banks? It’s not going to be pleasant. And, it’s early days. That’s the problem. Being a long-only equity manager in this timeline is not fun.”

“We saw in some recent food retailing metrics that, in the last four weeks, protein sales for food retailers is up 76 percent. Consumers aren’t eating out. They are buying what they need at their local grocery store and are cooking it at home. Grocery and telecom have significantly out-performed in the last two weeks.”

“The major concerns that I have, looking forward, is that New York as well as London are running into a big problems because there’s a runaway growth in infections much higher than we see in Europe or elsewhere. These are large groups of people, very difficult to stop. I think that we have a major crisis erupting in New York and London. This is probably the low point of the stock market crisis and we have been buying. We’re starting to buy this week and for the next few weeks. We have investor confidence and money is flowing in. People are taking advantage of the situation. I’m in a positive mood also because we had protection in place in some of our funds, so I’m overly positive and my mood for the stock market is much better than the mood for the real economy. I’d say, stock market wise, a recovery is probably six weeks out and we will get back to previous highs. The reason being is we are pumping money back into the economy right now. All governments are helping everybody. Right now, we have no supply but when supply comes back, it will have a huge impact on the economy. Everyone will want to make up for what he or she has lost. In the meantime, go on vacation, spend the money, have a good time, and that will lead to a pretty strong recovery. This opinion could change if the real economy suffers more.”

“My initial reaction a few months ago was Coronavirus will be Trump’s Chernobyl, namely his undoing. However, I don’t know if this is true because sometimes people vote for the leader is leading in times of crisis. Second point, if there’s an administrative change over I don’t know if it will be any better economically.”

“Assuming we had nationwide testing , the problem would be basically solved. As soon as you have everybody tested you can clearly separate the infected from none infected; the problem will be gone within weeks.  These people will either heal or not heal, but keeping them isolated, nothing spreads anymore. Second point is economic policy by central banks. I think you have to inject money exactly where it’s needed and not broadly. Injected exactly into the balance sheets of small businesses into people who have been laid off, give them a tax refund, put it exactly into to the right places, then you can solve the crisis. But just broad buying bonds in the broad market doesn’t help at all. There needs to be targeted stimulus.”

“Personally yes, I plan to be a net buyer in three months. Global money is going to have to go back into the market.”

“According to the experts, it is exponential the way this thing evolves, so should we be surprised when we see these jumps on a day-to-day basis? Probably not, obviously it is still concerning, though.”

“I think you’ll see money flow back into equities this year.”

“I am trying to work my way through the significant volatility, using it to upgrade my portfolio, generally. I am buying other larger, liquid names and also small cap names. With risk-reward profiles changing by the second, I am trying to focus the portfolio in on what I think the best risk-reward bets are. So, everyday, I am going through the process of buying some things and selling some things. I am not trying to dramatically shift exposure. I have covered almost all of my shorts. They all became fantastic pretty fast.”

“It will continue to be volatile over the next little while. I do not know if we’ve actually found a floor yet for commodity prices.”

“I think you’ll see a bottom and/or crater in the next month or so, and it will take a while for the market to start increasing. It really depends on what happens with stimulus. There are a lot of variables.”

“Equities will probably trade lower but, eventually, investors will decide that there is an end in sight and money will start coming into the equities before the commodities move.”

“If the US intervenes in the Saudi/Russia dispute, it could be a game-changer for the energy industry. You could see a spike if they come to a resolution. But, in the current condition, I think that you’re probably going to see some downward revisions just as inventories deplete.”

“I guess the risk here is that the only models that have shown containment are draconian. China can do that because China has centralized decision-making, being a communist state. China has much stronger enforcement compared to developed markets. Different countries are trying and doing different things. But increasingly, you’re seeing more and more European countries go into shutdown.”

“China has taught us that you have to shut everything down. That looks to be a successful model. So, let’s see other countries that don’t do that and then there’s a humanitarian disaster. All the hospitals get overwhelmed, then politically that’s challenging. This virus has just turned everything on its head. What was normal yesterday suddenly isn’t anymore and may never be again.”

“The gas price should fundamentally get stronger. There is a lot of associated gas production coming from oil production as people slow their development of oil. There should be less supply of gas, so that should be a positive for gas longer term.”

About Brendan Wood International:

Brendan Wood International (BWI), formed in 1970, is a private partnership generating independent performance audits globally. Brendan Wood debriefs large institutional investors worldwide on a daily basis. There are 2000 investors in the investor panel collectively managing + $40 trillion invested in the 1400 companies on the BWI Index. Relying on real time performance intelligence, the firm advises public companies, institutional and activist investors, investment banks and broker dealers on strategy, performance and recruitment of TopGun talent. The firm’s partners have formally presented at 1000+ C level strategy meetings and corporate off sites in fifty cities. Brendan Wood founded the exclusive TopGunsm Club, a performance based institution.

We wish to emphasize that all reports, evaluations and assessments contained herein, represent Brendan Wood International’s subjective judgment and opinions, based on our years of experience and on information obtained by us in the course of our research. Much of the factual information contained in the reports has been obtained by us from third parties on whose responses we have relied in good faith, independent verification by Brendan Wood International being, under the circumstances, impossible. While we believe that you will find our reports to be an invaluable tool in formulating your own strategies and judgments, the foregoing should be borne in mind. Under no circumstances should any ratings or evaluations of individuals’ performances in these reports be considered as a sufficient basis for making decisions concerning the careers of individuals, including such matters as promotions, compensation arrangements, terminations, etc.

This report is not meant as investment advice and should not be interpreted as advising on the value of a company’s securities, the advisability of investing in, purchasing or selling any company’s securities or any other conclusion relating to investment/divestiture of a company’s securities. Finally, this report is not intended as an offer or solicitation for the purchase or sale of any company’s securities.

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www.TopGunPress.com
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@BrendanWoodIntl

Contacts:

Jordan Novak
Partner
Brendan Wood International
+1 416 924 8110
jnovak@brendanwood.com

Amanda Knott
Managing Director
Brendan Wood International
+1 416 924 8110
aknott@brendanwood.com

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