Tomorrow's world – six key investment trends after COVID-19
While investors have been focusing on market movements during the pandemic and politicians are trying to deal with the massive economic fallout, this crisis will doubtless leave a lasting imprint on our daily lives. Here we highlight six key themes for investors that may play out post COVID-19.
1. New lifestyles lead to new technology trends
The work-from-home and online shopping revolution that would normally have taken 10 years happened in 10 weeks. These activities will become entrenched and some companies are likely to reflect that in their real estate by reducing their city centre footprint. There is probably no going back, even when most businesses reopen. New systems, new habits and new patterns have emerged, changing our day-to-day lives forever, and this is likely to keep the information technology sector booming.
We have explained previously why we continue to like the technology sector and although it could give up its market leadership when there is a workable COVID-19 vaccine, the long-term societal changes taking place mean it’s not going to go away completely.
2. Flexibility and innovation are key to the recovery
Crises have historically yielded innovation and creativity, sometimes in surprising ways. The death of thousands of horses in an 1815 famine led to the invention of the bicycle. The assembly line became prevalent after the Spanish Flu of 1918-1919. Business creativity will be tested in the recovery from this outbreak, whether it’s in how to deal with social distancing, reestablishing a profit model or launching new products or services.
The challenges we face are driving creativity to meet changing customer and world needs. Those businesses and individuals who are most flexible and innovative in their approach will benefit the most and successfully navigate a COVID-19 recovery.
3. Wealth inequality could lead to higher taxes
Social changes may lead to policy changes. As the rich have cut back on spending in the US, the UK and Europe, the poor have been the victims, whereas the educated elite has generally been able to work from home and governments have piled up the debt to rescue the economy. There is a risk that a whole generation of students and first job applicants may lose out from the virus, in particular as many traditional student jobs are in areas hit by social distancing (waitressing, bartending, the gig economy).
It is unclear whether there will be a political price to pay for that, but higher taxes, maybe even wealth taxes in various countries, cannot be ruled out. We believe various tax changes over the next 12 – 24 months are probable, which you can read more about here. Fortunately, some could be mitigated by careful and timely wealth planning.
4. ESG will become a core investment theme
This crisis will add to young people's concerns about the environment and social injustices. We see ESG principles (environmental, social and governance) becoming front and centre in everything we do and in the way companies are perceived by investors and society overall. In fact, there are five important ESG themes which already form the tenet of our sustainable investment strategy at Canaccord (cyber security, oncology, battery technology, water and waste management).
ESG is much more of a reality for younger generations than simply a greenwashing slogan. The rainbow coalitions, environmental marches and fights against social misdeeds will colour their attitudes to life and may eventually be reflected in government policy. We believe the opportunities for ESG investing are potentially enormous and could be incredibly important for many years to come.
5. Generational divides
Our attitudes to COVID-19 and how we live with it may well diverge depending on our age, social status and level of concern about the virus. Society may split into younger, carefree people – including many working class – who will say: ‘you only live once and even if I catch it I’ll survive’ and older, more concerned people who will socially distance and stay at home beyond the government edicts. The comparison has been drawn with the 1920s, which saw both Prohibition and the Jazz Age.
This could have an impact on spending and investing. Older people will be more cautious, won’t spend as much and may well want to endow their children with more funds, to enable them to behave normally and have all the chances to succeed that they had. This could mean shifts in consumption, wealth planning and investment patterns – and potentially another roaring 20s.
6. The rise of healthcare
After each crisis, people always try to prepare for a repeat of the same, rather than something completely different. Warning signs for a potential pandemic during the last decade fell on deaf ears, as many were trying to prepare for another 2008 financial/property crisis. Our focus on healthcare will therefore become sharper and more constant, and will keep feeding into medical technological advancements.
Some of the concerns will be warranted (during COVID-19 many other health issues, such as cancer or heart conditions, have been left untreated) and some of them exaggerated (the next crisis may well be something completely different). However, healthcare spending in our countries will likely be on a steep upward slope. We were recently joined by healthcare Polar Capital fund manager Dan Mahony, discussing the US$8trn healthcare industry and how investors can find exposure to its areas of resilient growth. Watch our video interview here.
There will be many societal changes following this pandemic and many implications for investors. However, we believe some of the opportunities are excellent, even with the uncertainty that remains.
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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.
This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.
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IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.