As we navigate a pandemic, now is the time for stockpickers to prove their worth

The economy is taking a battering, meaning that funds must do more to find value, writes James Moore

The healthcare sector should be in demand during a crisis so why is Emis struggling? (AFP)

Strange days. You would have thought shares in Emis Health would be in high demand. It’s a healthcare tech company which is heavily involved with the NHS. Tick. It reported a 7 per cent rise in revenues and a 9 per cent jump in operating profits in its latest results. Double tick.

The revenues come largely from subscriptions, which renew annually, and the NHS can be relied upon to pay its bills even when others maybe can’t. Triple tick.

Investors were told that current trading is in line (there’s another tick). But there was a mild warning that there may be “some limited short-term new business revenue delay due to uncertainty around coronavirus”.

The firm gets a black mark from me for the mangled English. That’s an awful sentence. But there’s a brownie point for making its GP video consultation service free for those using its clinical software to help limit the spread of Covid-19.

What the warning means in practice is that sales people aren’t meeting with clients in hospitals and the like as predictably as they were before, for obvious reasons. So the revenue from new projects may be slower to emerge.

When you compare that to what some sectors are experiencing, it’s the smallest of small potatoes. This looks very much like a company that should be catching the eye of investors. Right place, right sector, right time.

Not in the eyes of the market, however. Its shares took an immediate hit upon the release of the results, although it should be said that the trading volumes weren’t exactly high.

Emis isn’t a thumping great tech giant. It’s on the junior AIM market, which makes it subject to lighter rules and a more risky proposition than were it on the main list. The word “risk” is where its problem lies. There’s been a worldwide flight from that. Just as people have been panic buying toilet rolls they’ve been panic selling shares, even ones that you’d think would look good, like this one.

Of late there have been one or two risers on the market. Sainsbury’s at first took a corona kick but has since bounced back. Morrisons is in the same boat. M&S switching its people from clothes to food was noticed by dealers. Its shares have started to look frisky (yes, we really do live in strange times). Ocado was a shooting star from the off.

In time, they should emerge, if they’re any good and are selling something other than snake oil

But elsewhere even pharma has been struggling. That says it all.

In time, some shares are going to look absurdly cheap, and some of the sharper tacks in the box among the investment community will notice and take advantage. Britain’s heavily criticised stockpickers had better be among them.

Actively managed funds that aim to beat the FTSE 100, or some other benchmark, have long struggled to do that after their charges, driven in part by the cost of paying for their expansively remunerated mangers, are taken into account.

The horrible fall taken by superstar stockpicker Neil Woodford’s flagship fund brought further unflattering scrutiny to bear upon the sector.

This part of the money-management industry’s defenders have long argued that its luminaries will come into their own in the midst of a bear market. Like the one we’re in now.

Funds that track indices like the FTSE are currently like boats getting tossed in a storm.

Those operated by stockpickers, able to shift their clients’ money into safer harbours, and sniff out value (like maybe Emis?) ought to be doing better.

Of course, some of them won’t be able to invest in AIM companies, although some will. It all depends upon their mandates. But Emis isn’t the only interesting proposition amidst troubled times, some of which will be on the main market.

The advantages stockpickers argue that they offer mightn’t be immediately clear in the midst of a mass sell off. But in time, they should emerge, if they’re any good and are selling something other than snake oil. If they can’t prove themselves now, they never will.