There is a train of thought that political, economic and social disasters can accelerate existing trends – trends that may otherwise have taken years to really take off.
Having spoken to number of fund managers, economists and even scientists over the course of the past few months, I’m under no doubt that the Coronavirus could be such a catalyst.
Changing consumer behaviour is difficult – it’s why companies spend vast sums of money and time trying to achieve it through marketing and product placement. But the Coronavirus changed our behaviour and way of life almost overnight. The question is, will some of the changes be permanent or temporary?
Here, I take a look at a few areas where I believe we will see permanent change:
Healthcare systems around the world have been under pressure for some time, due to an aging population and the needs that come with us all living longer. I think this is an area that will now see huge investment.
Mark Sherlock, manager of Hermes US SMID Equity fund, agrees. He believes COVID-19 will have a profound impact on healthcare systems, which are being tested to their limits right now. “In many parts of the developed world we expect government response will be to invest more in their healthcare infrastructure to ensure they are better prepared if the virus returns.”
Another aspect to this is the way patients interact with doctors. As Dr Dan Mahoney from Polar Capital pointed out in his interview a few weeks ago, there may have been some barriers to doctor’s appointments via video conferencing before, but both doctors and patients will now have experienced how useful and convenient it is, and more will use it in future.
David Coombs, manager of Rathbone Strategic Growth Portfolio, concurs: “The future will be about smart medical devices that can collect data on our health through smart phones, and virtual visits to the doctor. I’ve always believed that you should invest in a tailwind and we have one now in healthcare: every government in the world needs to provide more healthcare for less money.”
We had already started to see more flexible working – and new office spaces had fewer desks than people, because companies know that not everyone is in the workplace at the same time.
But suddenly, working from home is the new norm for whole companies. And firms that facilitate that – like Zoom, Microsoft and Alphabet (Google’s owner) - now find their services in extraordinary demand.
Microsoft’s cloud solutions – in particular communication tools such as Skype – as well as its 365 suite, are allowing workers to find the flexibility that the current environment demands. Many have used these new productivity tools for the first time, and I suspect that usage will persist well beyond the end of the lockdown period. A top holding in Brown Advisory Global Leaders fund for some time, the managers view Microsoft as a long-term winner that has additional strategic importance to the enterprise in the near-term.
TeamViewer, a holding in RWC Continental European Equity has also performed strongly. The company provides cloud-based technologies to enable online remote support, including remote desktop services which has seen a surge in demand as more people are forced to work from home. The company reported that billings for Q1 would be up over 60% year-on-year.
Mark Sherlock also believes companies will change the way they operate, reducing employee travel through virtual meetings (it’s very inefficient in terms of costs and time to fly around the world for meetings) and adjusting their supply chains and inventory models to circumvent any future disruptions.
When it comes to food shopping, we have seen a dramatic change, with everyone trying to make the switch to online.
James Thomson, manager of Rathbone Global Opportunities fund, spoke to us recently about Ocado, which has been a top performer in the FTSE 100. It has experienced 10 times more demand and is at full capacity. “This crisis will pass, but it will also accelerate the transition to online ordering.” James said.
Smith & Williamson Artificial Intelligence manager, Chris Ford, also believes this trend will continue and that Ocado is well-placed. “Ocado is the clear leader in providing e-commerce solutions to large grocers around the world’ he said.
“Much of the current coverage focuses understandably on the UK retail business, but we will be more interested to see how much of the online ordering activity persists beyond the end of the acute phase of current crisis. We suspect that consumers’ habits will be seen to have changed. For those grocers that have not thus far invested in a robust e- commerce solution, we suspect that Ocado will be the supplier of choice.”
The gravitation towards online shopping also means a gravitation away from cash payments – another trend we had started to see, but that still had a long way to go in many countries. So, companies like Visa, Mastercard and Paypal, and indeed the ecosystem around payment networks, transactions and terminals, should benefit.
Will short-term reactions to COVID-19 lead to long-lasting changes in the real economy? The answer to this question will play a big part in determining investment strategies for the next decade and in creating significant growth opportunities for companies serving these markets.
For companies whose products and services forge a reputation for resilience in the fire of the coronavirus outbreak, the key benefit will be to emerge stronger, more profitable, and more embedded in our everyday lives. In the meantime, they have a role to play in keeping us safe, productive, and entertained through the dark days that we currently face.
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 are his own and do not constitute financial advice.