1 October 2020

For Piazza Affari, just as for other international markets, there was a divergence between securities/sectors that recovered all their losses placing themselves above the January prices and the rest of the market, which instead remained well below the values​at the beginning of the year. This phenomenon can also be found in the mid and small cap segment, where significant recoveries can be seen in those companies in sectors that have not been overly affected by the negative effects of the pandemic, or have been able to take advantage of possible growth developments.

What are the reasons behind this growth? “Many of these securities benefited from the acceleration of the computerization and digitization process due to smart working and the lockdown, with companies forced to increase investments in servers, cloud and digital security”, explains Massimo Trabattoni, Head of Italian Equity. “These investments have brought tangible revenues, cash flows and profits to companies in the technology sector, unlike what has happened in the consumer, travel, hotel and commuting sectors, where future prospects still remain an unknown”. The trend seen in recent months – according to Trabattoni – will continue because we will have to live with COVID-19 and problems related to it: a forced coexistence that will probably postpone the recovery of the more cyclical part of the listings.

As investors, we have certainly learned at this stage that day-to-day portfolio management can result in losses if you exit at the wrong time and try to re-enter while waiting for the right moment. The risk, in fact, is that of missing important elements of the market rebound. “Volatility has been and will continue to be sustained in the coming months because there is a lot of liquidity, but there is just as little visibility. With this in mind, medium-long term investment, for example through an ELTIF, offers the possibility of investing in issues or individual company histories that have potential for increasing value by entering at affordable levels, but without the worry about short-term performance”, comments Trabattoni.

The transition to an outlook of a broader time horizon is crucial for investing in opportunities that, if evaluated over a period of weeks or a few months, could prove to be not particularly performing. From this perspective, the closed-end investment has the important advantage of not being subject to buy backs. Unlike an open-end investment, which could be forced to sell at a stage in which good buying opportunities may arise, the closed-end investment allows you to buy on the market when prices are very affordable (evaluated with respect to medium-long term prospects ) and wait for its revaluation. This approach also makes it possible to consider the liquidity of the securities considered interesting in a less stringent way.

Furthermore, as Trabattoni points out, if five years ago the watchword was rigour in public accounts, today the Central Banks must maintain negative real interest rates to protect the financial sustainability of large public debts. Governments, in turn, will increase public spending by favouring investments that can have greater positive repercussions in terms of popular consensus, for example in the environment, computerization and digitization.

Considering that private spending is as limited as the visibility of the economic prospects, all this should translate into a tendency to re-evaluate real investments and, among these, equity. “However, even in equities, there will not be an overall benefit, it will be limited to companies of value in sectors with good growth prospects and in businesses with valid business models, quality management and that are capable of competing internationally. A scenario in which, in the near future, investment in individual companies and not in index funds should prevail”, concludes the Head of Italian Equity.

Interview with Massimo Trabattoni, Head of Italian Equity.