The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
Traditional defensive sectors – food retailing, pharmaceuticals, utilities and tobacco – have, as expected, provided some real protection against falling prices, although Imperial Brands’ share price has fallen sharply on the back of a much-reduced dividend.
COVID-19 has proven to be very challenging for income funds as a raft of companies have either cut or suspended their dividend payments. Leading this group has been the banking sector, where no dividends are currently being paid by those in the FTSE 100 Index. However, the real headlines were made by Shell’s historic decision to cut its dividend by two thirds, its first cut since the end of WWII – and a seminal moment for income funds.
Some stocks have boomed on the back of COVID-19, most spectacularly the NASDAQ-quoted Zoom video-conferencing business, the share price of which has almost trebled since late February 2020. In the US, Apple, now capitalised at over $2,000bn, and Amazon have both prospered, with their shares up by more than 60% over the same six-month period. In the UK, AstraZeneca, at the forefront of the global quest for a COVID-19 vaccine, has performed well – up by 10% since late February 2020.
Aside from the depressed banking sector, companies in the travel, hotel, leisure and retail sectors have all seen their share prices fall heavily – with a few exceptions. Shares in IAG, dominated by its British Airways component, have plunged by no less than 66% since late February 2020.
On the utilities front, resilience has been the key feature; only Centrica has been an exception to this trend. Shares in National Grid, despite the ongoing – and pivotal – RIIO-T2 periodic review, Severn Trent, United Utilities and the smaller Renewable Energy Infrastructure Fund (REIF) sector have all held up well, as have their dividends.