Empty supermarket shelves

Investors should prepare their portfolios to withstand the impact of supply shortages on stock markets by picking shares that can thrive amid the mounting disruption, experts have recommended.

Supply chain struggles for both goods and staff are worsening, with trade body the British Retail Consortium warning of increased pressure as schools return, offices reopen and retailers prepare for Christmas.

Stock markets are yet to be dented by the crisis, but economic figures are showing its impact. Britain's services sector grew at its slowest pace since March last month as disruption took its toll.

Leigh Himsworth of fund group Fidelity is concerned the crisis will get worse before it gets better. “People are realising how much of the economy is based on just-in-time supply. Supermarket shelves are often stocked the night before. Now we can see the gaps appearing,” he said.

Clipper Logistics

Mr Himsworth said the stock market winners from the supply chain chaos would be those business which had already proved their ability to prepare for disruption. He pointed to Clipper Logistics, which specialises in delivering online shopping orders.

“Before Brexit, Clipper spent a lot of time preparing for European drivers returning home and not coming back. That trend has been exaggerated by Covid, but now it already has some protection from it,” he said. Its shares are up by 51pc so far this year.

Mr Himsworth is not convinced that companies in the hospitality sector can handle the disruption as well, including pub chain Wetherspoons. “Reports suggest that it is already seeing shortages of its beers from Europe. It has done very little to sort out its supply chain,” he said.

While Wetherspoons has struggled to keep popular brands such as Carling and Coors flowing from its taps, supermarkets enjoy more flexibility when substituting missing products, and some are big enough to absorb supply shocks.

Tesco

Mr Himsworth said Tesco was poised to benefit from the disruption as its bargaining power with suppliers meant it could demand the flow of goods at the expense of rivals.



“Tesco is in a much stronger position than a small operator,” Mr Himsworth said. “If Tesco says to their suppliers: ‘you’re going to deliver to us’, the smaller grocer down the road is the one that is going to suffer, not them.”

While big supermarkets can stomach a supply squeeze driving up prices – and even pass on the cost to the consumer – Russ Mould of broker AJ Bell warned that doing so was dangerous for companies with high levels of debt, especially in areas such as construction and engineering.

“Any company with big fixed costs and big factories is vulnerable,” he said. Mr Mould pointed to brick manufacturer Michelmersh, whose shares have fallen 12pc from this year's high.

Warehouse Reit

Paul Mumford of fund house Stonehage suggested that warehouse providers may stand to gain in the long run, as companies placed a greater emphasis on protecting their stock from supply shocks. “In the future, more companies will act like supermarkets and hold more of their products in warehouses,” he said.

The best way for investors to benefit from increased demand for warehouses is to buy shares in a fund which owns them, generating an income by renting them to tenants.

Ewan Lovett-Turner of stockbroker Numis highlighted Warehouse Reit, a real estate investment trust whose shares are up 39pc this year.

“Warehouse investment trusts could be beneficiaries of the supply chain disruption,” he said. “Warehouse Reit typically owns larger warehouses, let to a single logistics business.”

Mr Lovett-Turner added that the acceleration of online shopping in the pandemic had fed demand for the trust's specialism in urban and “last mile” delivery.