How Pfizer’s vaccine will affect stocks in your portfolio

Wow, what a week! Pfizer announces it has a vaccine almost set to go, and hasn’t the market reacted! Happily for our investors, The Montgomery Fund has already pivoted towards a post-pandemic world: we’ve cut cash to a record low and invested in some businesses beaten down by enforced lockdowns.

Pfizer’s announcement is the strongest signal yet that the unparalleled search for a vaccine to bring the pandemic to an end might succeed. While the Pfizer vaccine is more difficult to produce and distribute than many others, Dr Anthony Fauci said: “The results are really quite good, I mean extraordinary.”

The speed with which progress has occurred has also broken every scientific speed record and this is partly due to the winter months in the northern hemisphere increasing the rate of infection and therefore the number of people upon which the vaccine can be tested.

The 90 per cent efficacy reported by Pfizer is materially higher than the vaccine we rely on for the seasonal flu, which is about 40-60 per cent effective according to the Centers for Disease Control and Prevention (CDC). With 90 per cent we can entertain the possibility of COVID-19 being eradicated. The results might also bode well for a vaccine being developed by biotech firm Moderna that uses a similar technology, providing hope we might even have two vaccines.

Fears over mutated strains need to be balanced against the now realistic assumption that we have discovered a Coronavirus vaccine.

You might remember I wrote an article for The Australian on August 28 about insuring portfolios for a vaccine. I also wrote a late August blog post here highlighting those sectors most leveraged to a vaccine announcement and the importance of having some vaccine insurance in portfolios.

In the Australian article I listed Sydney Airport and IDP Education, and in the blog Transurban, Sydney Airport and Atlas Arteria as examples of the types of portfolio holdings that would benefit. And that’s the second point: We have rotated the portfolio towards a ‘re-opening’.

We have owned Sydney Airport for some time, adding to the holding when the share price reflected a permanent stasis that we assessed as unrealistic.

The student placement and English testing company, IDP Education, is one we know extremely well and it was returned to the portfolio when prices failed to reflect the company’s position in a structural growth sector, and also the possibility that even in the absence of a vaccine foreign students might return with a two week isolation being a relatively minor ‘investment’ in return for living and studying in Australia (and elsewhere) for several years.

We also added Webjet, a company extremely sensitive to border closures and hotspot lockdowns but with enough cash to continue its rate of cash burn for a long time. The market also appeared to be ignoring the fact that 81 per cent of revenues are generated overseas where air traffic looked relatively normal.

Finally, it’s worth pointing out that we did not ‘chase’ the high momentum growth stocks that were winning under lockdown conditions. While we held Redbubble and Adairs, they were minor positions to begin with and Redbubble had been materially trimmed ahead of the vaccine announcement.

There will continue to be bumps along the road to wide distribution and acceptance of a vaccine (let’s not forget the anti-vaxxers!) but the announcement is a turning point. Down the track I suspect we will need to start watching for yield curve steepening (assuming US stimulus measures are eventually enacted).

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