What impact is the ‘pingdemic’ having on investment companies’ holdings?

by | Aug 4, 2021

The much reported ‘pingdemic’ has caused hundreds of thousands of employees to self-isolate for ten days when alerted by the NHS Test and Trace app. But what impact are these labour shortages having on investment companies’ holdings? And how has the opening up of the economy affected investee companies?

How are current labour shortages impacting investment company portfolios and how are companies adapting?

Gervais Williams, Co-Manager of The Diverse Income Trust, said: “One of the features of this economic recovery has been a critical shortage of all sorts of resources across a wide range of businesses, which in many cases includes a critical shortage of staff. Overall, we have always prioritised investment in stocks where the management teams excel in terms of staff motivation. Over the pandemic this factor has become a lot more important, and the best managed businesses are continuing to successfully recruit, whilst weak businesses will become even more vulnerable. Specifically, we have encouraged many of our quoted companies to include a lot more detail on this issue in their presentations, and in the annual report, as in time we believe the best companies will justify higher valuations.”

Abby Glennie, Co-Manager of Standard Life UK Smaller Companies Trust and Aberdeen Smaller Companies Income Trust, said: “The areas where we are seeing the greatest labour constraints in the UK would be in technology such as software developers, alongside the headlines around lorry drivers and freight. Many companies have talked about the demand for technology skills driving up salary inflation, particularly in some regions such as Manchester. Video game companies like Team 17 (held through Standard Life UK Smaller Companies) are based regionally in Nottingham and Wakefield which helps them access regional talent. The same is true for Kainos in Belfast.

“We see companies broadening their bases, both within the UK and internationally, to attract wider talent pools. The shortage of lorry drivers appears to be driving up freight costs, which have also increased heavily on a seaborne basis. Our quality businesses with strong supply chain relationships have been able to limit shortages and delays, and are also in a good position to pass on some of these inflationary cost pressures.”

Alasdair McKinnon, Manager of the Scottish Investment Trust, said: “Labour shortages have been most acute in segments of the economy where wages tend to be lowest. Inevitably, that extends to some of the service sectors most exposed to the reopening. However, we look for companies that have the ability to sustainably improve earnings, not just off 2020’s depressed base. In our book, rising wages and prices are the very definition of inflation. Central bankers take a different view, believing the phenomenon to be transitory. We believe that an era of higher inflation will be persistent and that will feed through to sales growth as well.”

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