23Apr2020-cover
23Apr2020-cover
5

The Problems with Testing

While “testing, testing, testing” has become the mantra for public health experts looking to contain the spread of coronavirus, and politicians and business leaders wanting to get workers back to work, it is far from a panacea for the pandemic and its adverse economic consequences.

– Chris Demasi

 

Since the start of the coronavirus pandemic, testing has been touted as the key to containing the spread and re-opening economies. It’s not so simple because testing capabilities are not robust.

Notwithstanding the success several countries, like Singapore, have had containing the virus in its early stages by testing for infection, contact tracing and subsequently isolating positive cases, the same playbook may not be repeatable by other countries, especially the US. The challenges are several-fold: supplies, resources and accuracy. Testing to determine those who have been infected and developed immunity faces similar difficulties.

To begin with it is important to understand that the level of testing is not just determined by the number of test kits available. Each test requires distribution and deployment, often by medical professionals, and the use of reagents to determine the presence of the virus. Each of these is falling short.

With the dramatic spike in demand for testing the essential, specialized “ingredients” – called reagents – have proven to be scarce. Except for South Korea – a country that has tested more of its population than any other – governments do not typically stockpile reagents and production capability is limited. The problem is exacerbated by so many countries clamouring for reagents at the same time.

At the same time the testing infrastructure is apparently under strain. While some tests can produce results in as little as 15 minutes, others need a five-day turnaround. Some are administered at the point-of-care, including drive-through clinics, while others require bulk processing in laboratories. This has seen the level of testing in the US level off at around one million tests a week. That sounds like a lot. Yet experts believe that testing needs to increase to around three million Americans per week to achieve a level of representation adequate to reopen the economy.

Even if the US reaches an adequate level of testing, there remains uncertainty around its usefulness. Testing in and of itself identifies the emergence of new cases. To be truly effective in managing spread and giving lawmakers and workers comfort to return to work, contact tracing is required. For each new case identified the most recent contacts need to be quickly determined, so they too can be tested. This should be repeated with the contacts of those contacts so that positive cases can be identified quickly and then isolated in order to thwart new outbreaks. Proper tracing requires about five people working for three days on each case, or around 300,000 full-time tracers in the US. The number working on tracing today is well below that.

Perhaps the most important testing to help return workers to their jobs is serology, or antibody, testing. Rather than test for presence of the virus, this testing identifies antibodies in a person’s bloodstream that indicate prior infection and (hopefully) current immunity. The problem so far is that serology tests are not perfect.

Today, most serology tests have up to 95% accuracy, or “specificity”. This means that 5% of people test positive for antibodies (and by corollary, immunity) falsely. To put that in context, if the prevalence of infection is also 5% (the current estimate in the US) then there would be just as many people being incorrectly identified as immune as those correctly identified. Said another way, how comfortable would you be going back to work knowing there’s a coin-flip chance that you don’t have antibodies, nor immunity, to coronavirus?!

Chance of serology tests wrongly determining immunity

While “testing, testing, testing” has become the mantra for public health experts looking to contain the spread of coronavirus, and politicians and business leaders wanting to get workers back to work, it is far from a panacea for the pandemic and its adverse economic consequences. We hope the challenges to effective and useful testing can be overcome, and quickly, but we realise that it’s a tough ask and one that may be underestimated by headlines and market movements of late.

 

Chris Demasi is a Portfolio Manager with Montaka Global Investments.
To learn more about Montaka, please call +612 7202 0100.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.

Our
Strategies

Our Strategies

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.