The COVID-19 outbreak has taken the world by storm. This is a black swan event that has affected the everyday life of nearly all corners of society. One thing is for sure, nothing will ever be completely back to normal. Instead, we’re going to adapt to the new normal. The pandemic has helped to accelerate various trends, leading to the swift destruction of industries already in decline but also accelerating technology adoption in other areas. As an investment manager, it is changing our view of the world and how we think about investing. No investor wants to be stuck with a portfolio of “old economy” companies when the new technology economy has been kicked into hyper drive. Along these lines, we wanted to highlight the trends and ideas that we feel will be important going forward:
- A nail in the coffin for traditional brick and mortar retail: The rise in online shopping over the past decade has decimated traditional brick and mortar retail. The pandemic has only helped to speed this up. Amazon sales are surging while JC Penny and J. Crew have filed for bankruptcy. Real estate companies with heavy exposure to malls and retail will have to rethink their strategy. And for all the retailers out there, having an online presence is essentially the new storefront.
- Delivery delivery delivery: During the outbreak, there was a wave of “forced adoption” for grocery, food, and medication delivery. High risk people were forced to quarantine and adopt these new services. Businesses like UberEats and InstaCart saw surges in demand. Many folks will be wowed at the ease and convenience of these options and will continue to use them. Along with the retail trend – people are buying more online, opting for free-next day delivery in some cases. This convenience is slowly becoming the norm.
- Work from home for the win: During the quarantine, all non-essential office workers were getting things done from home. This showed businesses in just about every industry that their workforce can be just as productive at home – with the added benefit of lowering their office expenses. Many companies will continue this long after COVID-19 has passed. Already we’re hearing businesses ranging doctors offices to banks to public storage facilities state that work-from-home arrangements may become permanent.
- Sustained drop in demand for fossil fuels: Along with the work-from-home theme, less people out and about on a daily basis is going to reduce demand for fuel consumption. Further, the public will see the benefits that this will have on the environment, likely accelerating the shift away from fossil fuels towards renewable sources. Further, the pandemic has decimated the travel industry. Cruise ships are empty and airline traffic has come to a screeching halt. It will likely take time (and a vaccine) to restore public confidence that travel can be done safely.
- Every company is a tech company: It’s hard to say what defines a tech company anymore. Everyone has to have technology to stay relevant. Technology is no longer a useful add-on, it is essential for core operations. Video-conferencing, online marketing, and social media have destroyed the geographical limitations of many businesses. It has opened up a whole new (and larger) customer base. To capitalize on this, you must have the right technology in place!
- Reverse globalization: bring those supply chains back home: I read a recent New York Times article about how France is almost completely dependent on foreign sources for face masks and other medical equipment. One of the great benefits of globalization has been the sourcing of low-cost labor and materials globally where ever it makes the most economic sense. Enter COVID-19. Countries realized that not having access to a variety of essential resources within their own borders is a security threat. This will bring factories and supply chains back to domestic territory. It may have the affect of raising costs, but not doing so could be an even bigger risk.
- Exponential demand for data: There was already robust demand for data, which has grown significantly over the past decade. It’s about to hit an inflection point with more people permanently working from home, using online commerce, and streaming media. Further, telecom companies are starting to roll out 5G networks, which are supposed to be exponentially faster and open up a whole new world of smart devices. This, in turn, will put heavy demand on wireless and data center infrastructure.
These are the themes we believe investors should keep in mind as they evaluate companies within their portfolios. No one wants to find themselves on the outside looking in as the new economy produces a new set of economic winners. The world was changing at a rapid pace before the outbreak, but COVID-19 has kicked things into overdrive. The investors that will be successful down the road will be the ones with the analytical capabilities to understand the drivers of change and how it affects different industries. We hope you found this blog post insightful. Be sure to check back frequently and subscribe on the right hand side bar. Thank you for reading!
This is not an offer or recommendation to buy or sell any security and does not constitute investment advice.