I’ve no intention of providing a running commentary on the absolute tsunami of deep-dive analyses into the data emerging from the CoVid crisis but I do recommend tracking down a PDF which acts as a fantastic summary – it’s called the Economics of a pandemic: the case of Covid-19 and it’s been pulled together by Paolo Surico and Andrea Galeotti, Professors of Economics at London Business School. You can find it here – https://icsb.org/theeconomicsofapandemic/

One chart really stands out for me.

Like many, I’ve been following all the debates around fatality rates, R rates and so on. What’s immensely familiar to all of us is that older people are obviously more vulnerable. But the chart below shows that actually the virus seems to be infecting (mostly harmlessly) many more young people in South Korea.

Disproportionately so. The LBS professors compare Italian test scores with the extensive South Korean numbers.

Look at the difference. It is huge.

There might be any number of explanations but might one logical explanation be that millennials are the prime carriers of the virus?? Who knows, but it’s not unfair to say that the youngsters move around a lot more than geriatric 80 something’s and have many more social interactions. Fascinating stuff and absolute proof, if that was needed, that the young should make even more of a point of self-isolating.

And as for suggestion doing the rounds that the young in particular should be conscripted into a form of NHS National Service, maybe we might give that concept a bit more thought.

Two other gems from the report.

The first is that many of us have long suspected that whatever numbers we see about prevalence, we should multiply by 5 to 10 fold to gauge the true extent of infection. So if China says it had around 80k, maybe the true number might be closer to 1 million. Crucially I have an abiding suspicion that a vast percentage of those ‘hidden’ infected are in some way asymptomatic. Thus we can advance the thesis that in reality there’s a much bigger pool of infected lurking around.

Onthat score this quote from the LBS summary is worth pondering –  according to one analysis “ we estimate 86% of all infections were undocumented prior to 23 January 2020 travel restrictions. Per person, the transmission rate of undocumented infections was 55% of documented infections, yet, due to their greater numbers, undocumented infections were the infection source for 79% of documented cases.

The point here is that all this speculation could be put to rest if we – as planned – kick off a vast testing programme. And even here the LBS professors offer what I think is a splendid “A simple policy proposal” namely random testing, statistical analysis and surveillance

  1. “Test a representative sample of the population (independently of symptoms), recording socio, economical, demographic and locational characteristics at the household level
  2. Use standard statistical methods to infer the household characteristics most likely to predict whether someone is infected or not in the whole population
  3. Develop surveillance strategies based on the information revealed in (2): nation-wide contact tracing, targeted social distancing”.

More fund dislocations

Anyway, back to the markets. The sell-off – which I think will probably continue but possibly in less dramatic fashion – has exposed lots of interesting dislocations.

One point is worth laboring.

The scramble for income has not gone away as interest rates hit zero. Now I happen to think that the Low Rates Longer thesis might need revising over the remainder of the decade but for now, investors have a pressing need for income, preferably from diverse income streams.

SO, maybe they might cast their eyes first over the SDCL Energy efficiency Income Trust SEIT. This is currently trading between 86.50p and 90p on a discount of 14% to NAV (compared to premiums of around 5 to 6% before the crisis). It’s down over 20% for the last month in share price terms.

Its core activities – long term contracted energy efficiency projects, globally – are unlikely to be heavily impacted by the crisis. Maybe one might see a blip for a quarter or two but the core drivers are if anything likely to become even more profitable. And that regular income stream will soon seem compellingly attractive very soon.

Next up, Impact Healthcare is I think a slightly more adventurous bet but arguably more compelling. To remind readers, it owns (largely purpose-built, newish) senior care facilities which it then contracts out to service providers. This is not an easy business at the best of times, and I guess this sector is hellish now. But the demand isn’t going to go away, and my guess is that after this crisis we are going to have take a long hard look at how we properly fund late in life personal care. Governments have been passing the buck for as long as I can remember and as more stories start to emerge about substandard care in the crisis, I think we’ll be forced – rightly – into action.

Anyway, Impact is currently trading at around 70p a share and is down 35% over the month. According to fund analysts at Numis this fund looks to be in pretty good shape. “Tenants had 1.8x rent cover on average across Impact’s portfolio in FY19. A number of tenants are in discussions with the NHS about making beds available in order to relieve pressure on hospitals. A principal concern of tenants is to ensure they have adequate staff available to provide care. However, some are reporting a higher than normal number of job applications”.

Gearing is especially low with an LTV of 6.8% and Impact does not have to refinance any debt before June 2023. On 25 March the fund had £22m (6.5% of net assets) of available cash. Yet the fund is trading on a 34% discount versus 7% for its closest peer Target Healthcare.