30 BARRON’S October 12, 2020
ophy. “It’s more of a value sensitivity,” says
Kripke. “Every investment needs to offer
twice the upside opportunity relative to
downside risk,” and price is a big part of
the equation.
When the severity of the Covid-19 pan-
demic became clear earlier this year,
Kripke and his co-managers repositioned
the portfolio for an immediate recession—
and for a timely fiscal- and monetary-pol-
icy response. For example, they lightened
up or exited interest-rate-sensitive compa-
nies, such as Charles Schwab (SCHW)
and Essex Property Trust (ESS). They
also bought shares in companies like Star-
bucks (SBUX) and Coca-Cola (KO),
which were hit hard initially but are
poised to do well as economies reopen.
In fact, most of the portfolio is posi-
tioned for a recovery. The U.S. election
will undoubtedly bring bouts of volatility,
says Kripke, but accommodative mone-
tary policy will continue, no matter what
happens inNovember. “I don’t makepre-
dictions of who’s going to win or lose [the
election], but I will say that I am a be-
liever in science and time,” he says, add-
ing that he thinks a combination of a vac-
cine, therapeutics, and herd immunity
will pave the way for strong growth in
One of the fund’s highest-conviction
ideas is United Parcel Service (UPS). At
the same time it benefits from increased
economic activity, the company is realizing
the benefits of more automation and effi-
ciency. The fund bought UPS stock in 2018
after the company announced a three-year
plan targeting $20 billion in capital expen-
ditures to modernize its operations.
At the time, UPS shares traded around
$100, with a price/earnings ratio in the
midteens. “It was a value story,” Kripke
says, noting that technology is key to
helping the company turn bigger volume
into better profit margins by, among other
things, lessening the need to hire tempo-
rary labor to keep up during busy peri-
ods. In March, UPS brought in a new
CEO, Carol Tomé, further adding to the
Pioneer team’s conviction. “She helped
transform Home Depot [where she was
CFO] and is extremely financially disci-
plined,” Kripke says.
While changes in business cycles and
business models offer an entry point into
high-quality companies, improving ESG
practices are another reason to buy a
stock. This was a catalyst for Kripke’s deci-
sion to buy Walmart (WMT) shares in
- “You can look at Walmart, for exam-
ple, and they’ve gone from being the poster
child of a terrible company” for workplace
equality, he says, to one that is improving
its ESG on several levels, including em-
ployee pay, career opportunities, and di-
versity, as well as environmental efforts.
“They want to be net carbon neutral by
2040,” he says.
Under CEO Doug McMillon, the com-
pany has moved from being a low-cost
leader to a retail innovator. McMillon cut a
deal to acquire Jet.com to ramp up Wal-
mart’s e-commerce capabilities. Online
sales in the second quarter nearly doubled
from the same time last year, putting Wal-
mart in the same league as Amazon .com
(AMZN), which is one of the fund’s largest
holdings. “We’re happy to own both,”
Kripke says.
In fact, the fund owns many competitive
duos, including UPS and FedEx (FDX),
Mastercard (MA) and Visa (V), and
Bank of America (BAC) and Wells
Fargo (WFC). Doing so is a way to have
conviction in a theme without exceeding a
5% position in any single stock.
Two relatively new additions to the
fund are Elanco Animal Health (ELAN)
and Zoetis (ZTS). Both are leaders in
medicines and vaccinations for pets and
livestock, and both are spinouts from
larger pharmaceuticals—Eli Lilly (LLY)
and Pfizer (PFE), respectively. The fund
took advantage of the market selloff in the
spring to add to these position and cap-
ture what Kripke considers a long-term
trend of increased spending on compan-
ion animals.
This theme is one way to gain exposure
to the health-care sector without the typi-
cal election-year volatility. Democrats and
Republicans seem to agree on few things
these days—but pets are one place where
people still find common ground.B
Pioneer
Total Return
1-Yr 3-Yr 5-Yr
PIODX 23.8% 15.7% 15.2%
Morningstar Large Blend Category 13.6 9.7 11.4
Top 10 Holdings
Company / Ticker % of Assets
Apple / AAPL 6.8%
Amazon.com / AMZN 6.0
Microsoft / MSFT 5.8
United Parcel Service / UPS 4.9
Mastercard / MA 4.8
Visa/V 4.7
Alphabet / GOOGL 4.4
Verizon Communications / VZ 4.2
Union Pacific / UNP 3.3
Facebook / FB 3.1
Total 48.0%
Note: Holdings as of August 31. Returns through October 5; three- and
five-year returns are annualized.
Sources: Morningstar; Amundi Pioneer
How to Play a Reopening
Of the Economy in ETFs
W
FH may be the trendiest
acronym on Wall Street.
Whether it’s videogames,
virtual meetings, or online
shopping, the pandemic accelerated
growth for “work from home” companies,
while the broader economy hit a wall.
Yet some analysts now see better risk/
reward in stocks benefiting from an eco-
nomic reopening. It’s a contrarian idea,
partly because WFH stocks still have the
momentum. But the gaps between WFH
and Reopeners are now so wide that the
latter may have more to gain.
“We see better risk/reward in the Re-
openers,” says Ben Laidler, CEO of Tower
Hudson Research, an independent re-
search firm. Tower’s WFH and Reopening
baskets—15 stocks in each, which are
highly sensitive topandemic news—have
diverged sharply. WFH stocks trade at five
times book value, versus two times for
Reopeners, and the Reopeners have lagged
behind WFH stocks by 100 percentage
points this year.
The disparities make sense, based on
earnings trends. WFH is dominated by
tech and consumer stocks— Amazon.com
(ticker: AMZN), Netflix (NFLX), and
Peloton Interactive (PTON), for
instance—while Reopeners include such
cyclicals as Boeing (BA), Marriott Inter-
national (MAR), and United Airlines
Holdings (UAL), all slumping. Earnings
estimates have gone in opposite directions:
WFH forecasts are up 30% since January,
and the Reopeners are down 120%.
There is much to like about WFH
stocks, beyond the pandemic. Many
white-collar workers aren’t going back to
the office, benefiting cloud technologies.
Even if we start venturing out for fun, the
competition at home has gotten stiffer
after we splurged on big-screen TVs, sta-
tionary bikes, and smoothie makers.
Yet the Reopeners may be nearing an
inflection point. Vaccine approvals are
probably coming in the next few months,
lifting consumer and business sentiment.
Investors may reposition for a cyclical
recovery in 2021, pending the election
results. And Reopeners have “operating
leverage,” says Laidler, since they slashed
operating costs. Small revenue gains may
fuel a big impact on the bottom line.
Exchange-traded funds capture both
themes, albeit with shortcomings. The
Direxion Work From Home ETF
(WFH) holds 89% in tech, including com-
panies like Twilio (TWLO), Crowd-
Strike Holdings (CRWD), and Zoom
Video Communications (ZM). It also
holds stocks that stretch credulity for the
WFH theme, such as Xerox Holdings
(XRX), down 45% this year, and Latin
American telecom América Móvil
(AMX) , down 19%. The ETF has
matched the S&P 500 since launching in
late June, returning 12.1%, versus 12.3%
for the index.
There isn’t a Reopening ETF on the
market—yet. One way to capture the
theme: bet on travel and leisure. The
U.S. Global Jets ETF (JETS) is a play on
a recovery in passenger air traffic. Airline
revenues haven’t been making much of a
comeback and will still be down 50% in
2021, compared with 2019 levels, for ma-
jor U.S. carriers, according to J.P. Morgan.
But 2022 should be a recovery year, with
revenue down an average 15%, and profit
may materialize on a lower cost base.
The Invesco Dynamic Leisure and
Entertainment ETF (PEJ) would benefit
from a recovery in consumer spending,
too. It holds fast-food chains, hotels, casi-
nos, and media stocks, including Madi-
son Square Garden Sports (MSGS),
Cinemark Holdings (CNK), and Live
Nation Entertainment (LYV)—bets on
consumers going back to live sporting
events, the movies, and concerts.
None of these funds will thrive without
good news on a vaccine and economic re-
opening. But they may be poised for liftoff
if we are able to stay home a bit less.B
By Daren Fonda
FUNDS