Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

This was not the week Britain’s travel and hospitality sectors had been looking for. Shares in airlines, hotel groups and pub chains were volatile this week amid rising cases of the coronavirus and fears of new restrictions on social gatherings.

On Tuesday we learned the government had decided to close pubs early and reverse its previous guidance on workers returning to their offices.

It could, however, have been worse. “Circuit break” restrictions aimed at halting a second wave of the coronavirus didn’t materialise. Pubs and restaurants were not closed down and decisions in Scotland and Northern Ireland to suspend the mixing of households indoors didn’t transfer to England and Wales.

It’s probably fair to say the more significant return to normality by Christmas the prime minister was talking about just a couple of months ago has been pushed out by another few months. The rule introduced earlier in September saying we cannot socialise in groups of more than six stays in place.

Arguably, the only substantial rule change we saw this week was the introduction of a 10pm curfew for pubs and restaurants. With many already working from home, the reversal of advice to workers to return to their offices may have a limited additional effect, although the continuing impact on service providers in city centres remains a deep concern.

Undoubtedly market sectors already heavily impacted by tough trading conditions this year remain at risk. The 10pm curfew will be felt acutely by pubs and restaurants, which only reopened on 4 July, and desperately need every opening hour they can get. The industry says the new rule will result in lost sittings and lost shifts for staff, the last thing it needs as it already wrestles with reduced capacity as a result of social distancing1.

Meanwhile, rising cases of the coronavirus pose further challenges for airlines, both in terms of a deficit in confidence and especially if other countries decide to impose quarantine restrictions on UK travellers.

A leading survey of economic conditions for UK companies this week pointed to a weakening recovery in September after the ending of the Eat Out to Help Out Scheme, but still an improved position compared with the second quarter of the year when full lockdown conditions were in place2. The fear is that while the recovery we have seen has been robust, it may also prove short lived.

We’re not back to square one. Current conditions are a long way from being a full lockdown. Businesses, consumers and workers have found new ways to operate and that, presumably, will continue. That’s a positive for those technology companies – predominantly American – helping people to stay connected in a touchless world.

Meanwhile, considerable work on a vaccine has been underway. It’s estimated that more than 250 potential Covid-19 vaccines are now in accelerated development around the world and substantial planning has been put in place to ensure their eventual rollout3.

Projections that the first effective vaccines may be widely available by next spring largely coincide with the prime minister’s current vision of when our daily lives may be getting back nearer to normal. So there are no short cuts here, just a further period of uncertainty before our eventual emergence from the pandemic.

The Chancellor’s Jobs Support Scheme announced on Thursday is designed to help bridge the now extended gap between the end of furloughing in October and a return to more normal economic conditions. While less generous than the furlough arrangements it replaces, the scheme may go some way to reducing the cliff edge of job cuts that had been anticipated at the end of next month.

Extending the period of a VAT cut for the hospitality sector until next March and a repayments extension for government loans to businesses look sensible moves too.

It seems likely that, as we saw over the summer months, Covid-19 related news will continue to drive short term moves in the UK stock market. Better-than-expected news on a vaccine or the number of new cases might just as easily force stocks in vulnerable sectors higher as disappointments might cause stocks to retrace.

Clearly, at a time like this, there are greater risks for businesses with high debt to earnings ratios than those without, implying it remains as important as ever for investors to be diversified across the market and to select highly skilled and experienced managers when investing in a fund.

Fidelity’s Select 50 list of favourite funds includes several with distinctive investment styles and defensive qualities. The Liontrust UK Growth Fund is focused on companies that have the pricing power necessary to sustain profits over the long term. The fund’s largest holdings currently are AstraZeneca, British American Tobacco and GlaxoSmithKline.

The Fidelity UK Select Fund favours businesses with strong brands and robust balance sheets – “quality growth” companies, in other words. Particular attention is paid to the competitive environment in which companies operate and the potential for disruption through the arrival of new technologies or businesses. Unilever, Rio Tinto and Reckitt Benckiser are the fund’s three largest investments currently.

Sources:

1 Eater London, 22.09.20
2 IHS Markit, 23.09.20
3 World Economic Forum, 17.09.20

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics covered

Active investing; Funds; Markets; UK

Latest articles

How to buy UK shares at a discount

Can investment trusts offer an advantage?


Graham Smith

Graham Smith

Market Commentator

When will Premier Inn-owner Whitbread get a break?

It’s unlikely to get one while pandemic lockdowns persist


Emma-Lou Montgomery

Emma-Lou Montgomery

Fidelity Personal Investing

Why doing nothing could be the best investment decision

Second-guessing an outcome could be a fool’s game


Emma-Lou Montgomery

Emma-Lou Montgomery

Fidelity Personal Investing