There is a train of thought that political, economic and social disasters can accelerate existing trends — trends that may otherwise have taken years to take off
Having spoken to fund managers, economists and scientists over the past few months, I believe Covid-19 could be such a catalyst. Here, I look at areas I believe will see permanent change, and the funds investing in them:
Healthcare systems worldwide have been under pressure due to an ageing population. I think this area will now see huge investment. There is likely to be more government spending on hospitals and facilities, while social distancing has forced us to think about virtual visits to the doctor, the use of robotics in procedures and surgeries, and smartphones to collect real-time data on our health – all nascent trends that have previously faced barriers to their take-up.
Funds investing in healthcare
Polar Capital Global Healthcare trust is an investment trust I like that talks very nicely to all of these themes. It invests for both growth and innovation across the healthcare sector.
Comgest Growth Europe ex UK and Baillie Gifford Global Discovery are more generalist funds, with very significant exposure to healthcare companies (32% and 42% of their portfolios respectively*).
2 Working from home (WFH)
As WFH has become the new norm for so many of us, firms that facilitate it – such as Zoom, Microsoft and Alphabet (Google’s owner) – have found their services in extraordinary demand. I suspect usage will persist well beyond the end of lockdown. Not only do these services help people work from home, they could also greatly reduce costs for companies. It is inefficient to fly employees around the world, for example, when we can conduct productive meetings from the comfort of our homes.
Funds investing in WFH technologies
AXA Framlington Global Technology is again an obvious choice as it invests in many of these areas, as well as others that are too numerous to mention.
Brown Advisory Global Leaders is a more generalist fund that has had Microsoft as its largest holding for many months. And Scottish Mortgage Investment Trust has a great track record of backing exciting growth companies at an early stage – including the likes of Zoom.
Social distancing has also accelerated the move to e-commerce. When it comes to food shopping in particular, there has been a dramatic change, with supermarkets seeing online demand increase dramatically.
Many became overwhelmed and it took weeks for them to offer the regular services that existing clients had been used to. I suspect that many customers will continue to do their food shopping online in the future.
The gravitation away from shopping malls, supermarkets and cash payments will likely lead to the world becoming cashless faster. Companies such as Visa, Mastercard and PayPal, and the ecosystem around payment networks, transactions and terminals, should benefit.
4 Funds investing in ecommerce
Smith & Williamson Artificial Intelligence fund invests in companies that have benefited from the need to stay at home, including Ocado, which it believes will be the supplier of choice for those global grocers that do not have an online solution of their own. Rathbone Global Opportunities, on the other hand, is invested in most of the payment networks and solutions mentioned**.
Investing for the next decade
Will short-term reactions to Covid-19 lead to long-lasting changes? The answer will play a big part in determining investment strategies for the next decade. Certainly, those companies whose products and services gained traction during the pandemic will most likely emerge stronger, more profitable, and more embedded in our everyday lives.
* Source: Fund fact sheets as at 31/3/20
** Source: Fund fact sheet as at 29/2/20
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views and those of the investment professionals quoted are their own and do not constitute financial advice.
Darius McDermott is managing director at Chelsea Financial Services and FundCalibre.