Premier Miton Investors Q&A: Good quarter in total return terms (LOM:PMI)

Premier Miton Investors plc (LON:PMI) Head of Equities Gervais Williams caught up with DirectorsTalk for an exclusive interview to discuss mainstream stocks, Small Cap and COVID hotspots.

Q1: Gervais, although markets have recovered over the second quarter, why do you think mainstream stocks seen to have lagged somewhat?

A1: It’s been a good quarter, in total return terms including income, I think the All-Share was up some 10.5% but that has actually been outpaced by Small Caps and lots of other markets around the world.

I think the overwhelming aspect which has been affecting markets is the dividend cuts. Many mainstream companies have cut their dividends, some Small Cap’s have done so too but I think that has been a real drag on the market on the way down and they haven’t fully recovered.

So, if you look at income according to Peel Hunt, something like 36% of the income has been cut over the last few months so that’s a big setback and I think it’s really had a dragging effect on the mainstream market.

Q2: Like you say, in contrast you can see the Small Cap indices have risen much more rapidly, why is that?

A2: I think the whole point of being small is many companies have smaller market positions and that gives them more agility, they can continue to take market share perhaps from some companies that have pullbacks or have gone bust and they can hopefully be more agile moving into new markets.

So, all of that gives them an opportunity to move forwards perhaps even when other companies are going backwards.

Lots of companies have had disappointments in the  Small Cap’s but it is interesting how much they’ve recovered. If you take the AIM All-Share which is the mainstream Small Cap market in the UK, that’s up something like 29.8% in total return terms in the second quarter and it’s now just down 7.4% for the year.

So, I think it’s the agility of Small Cap’s and the ability to steer around other problems at a time when perhaps other companies are suffering market setbacks.

Q3:  How much more do you think we should worry about further COVID hotspots?

A3: COVID is with us for the duration, it’s not going to go away. I think what will happen is we will see a change in pattern in that as we get new testing, not so much mainstream testing, but if you get more consumer testing point of care, perhaps with saliva tests for example where you get an answer in 10 minutes, I think as they become mainstream – they’re only months away, possibly even weeks – I think that will completely change the whole theme.

If you’re getting onto an aeroplane, one would have COVID tests and you won’t be sitting next to someone who has got COVID, if you’re going to go and see someone in a nursing home, you’ll have a COVID test, if you’re a hospital staff member you might well have a COVID test regularly, maybe every few days.

So, from that point of view, when you get this numerous volume of testing, I think that’ll really nail COVID to a certain degree, it won’t disappear but it’ll be much much more constrained and the hotspots will die away. Most particularly, we can get back to not quite normal but perhaps more regular business where companies can continue to prosper.

I think that’s going to be a big change and, as that occurs, I think the stock market and the winners and losers will differentiate again and we’ll be able to find individual companies which don’t just succeed but continue to succeed disproportionately going forward because they’re better placed than others to take advantage of the recovery.

Premier Miton Investors plc (LON:PMI) is focused on delivering good investment outcomes for investors through relevant products and active management across its range of investment strategies, which include multi-asset, equity, absolute return, and fixed income.

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