- Stock markets have been volatile during the pandemic, and fund managers are spotting new opportunities.
- The coronavirus outbreak has accelerated the shift to a tech-focused economy, they say.
- Many sectors have lost out, but others – including digital payments and mining – are set to thrive.
- Visit Business Insider’s homepage for more stories.
The coronavirus pandemic has changed the way we live and work. While many firms and sectors have lost out, others are thriving, and fund managers hope to capitalise.
Freddy Colquhoun, investment director for wealth manager JM Finn, says the current crisis marks a farewell to the old economy of oil and banking stocks, and the rise of a new, tech-focused one, which was already looming before the pandemic hit.
Business Insider spoke to fund managers and stock pickers to find out which sectors look strongest. Here are the 10 sectors that British investors are backing, along with a look at how the equivalent MSCI index – which tracks a portfolio of listed companies in a given sector – performed between the start of 2020 and the end of May.
More people are shopping online, moving the prospect of a cashless society closer. This is a boost for companies providing digital payments, such as Visa or PayPal, Colquhoun says.
Stocks for companies heavily exposed to digital economies, such as digital payment firms, returned 11.15% between January 1 and 30 May 2020, according to the MSCI Digital Economy Index. The index includes listed companies such as Visa, MasterCard, and Apple.
In comparison, the MSCI IMI Index – which captures all types large, mid, and small listed companies across developed and emerging markets – was down 9.72% in the same period.
Stuart Clark, a multi-asset portfolio manager for Quilter Investors, says energy firms stand to benefit, especially those in renewables. “A green recovery will benefit those involved in decarbonization as well as ‘dirty sectors’ such as oil who could benefit from the shift.”
The MSCI World Climate Change Index, which tracks the performance of low-carbon stocks such as Tesla and Johnson and Johnson, is down 6.05% so far this year. This drop could be down to the makeup of the index – it is weighted to smaller companies, which can be more volatile. Additionally, the falling oil price may have hit companies in the index.
The shift to remote working has boosted cloud computing providers, such as Microsoft and Amazon Web Services, as well as hardware firms and manufacturers who supply the chips to make servers, Clark says.
New work patterns have helped stocks tracked by the MSCI ACWI Information Technology Index, including Microsoft, Intel, and Samsung, return 4.49% in the year-to-date.
Automation makes both our work and home lives easier. Analysts at PwC predicted in 2017 that robotics and artificial intelligence would boost UK GDP by 10% by 2030, and Colquhoun says the pandemic may hasten this shift, as companies try to find ways to cut costs.
“Firms may want to replace their middle and back office roles with robotic process automation,” he said.
The MSCI Robotics Index, which tracks US stocks including IBM and Salesforce, shows these types of shares have returned 0.24% globally since January.
The closure of nonessential shops and long queues at supermarkets during the UK lockdown have pushed many people towards online delivery services.
Colquhoun says this has benefited companies such as Amazon and Ocado, which has sold its online delivery technology around the world.
“Some people will stay online especially if there is no vaccine available as they will want to allocate risk to certain areas, one of which is doing the weekly shop,” he said. This trend is also good news for logistics companies such as UPS, or those managing storage or distribution warehouses.
The MSCI Next Generation Innovation Index, which includes online-focused firms such as e-commerce companies, shows a year-to-date return of 10.48%.
The UK government has committed to big infrastructure projects such as the 5G rollout, more cycle lanes, and a network of electric car charging points. Kasim Zafar, chief investment strategist at wealth manager EQ Investors, said the loosening of government purse strings could make infrastructure spending “a key part of the route to recovery.”
UK stocks such as the National Grid and Vodafone form part of the MSCI Europe Infrastructure Index, which is down 10.06% in 2020, up to May 30.
Zafar says the public warming to electric cars could boost the auto sector, especially if rumours of a government scrappage scheme for old diesel vehicles turn out to be true. “With climate change and cleaner air high up on government agendas, we think the sector should see some recovery if it is able to get people back into the showrooms,” he said.
However, the MSCI Automobiles and Components Index, which tracks well-known brands such as Tesla and Toyota, is down 13.2% so far this year.
From the search for a coronavirus vaccine to supporting ageing societies, healthcare is big business. Global healthcare spending is projected to reach $US10.059 trillion by 2022, according to Deloitte.
Sheridan Admans, investment director at investment platform The Share Centre, says consumers continue to buy healthcare products in uncertain times, as evidenced by recent stockpiling.
“Innovation will also continue to play a big part in ensuring better healthcare provision at lower costs,” she added.
Stocks tracked by the MSCI Europe Health Care Index have returned 2.4% this year. The index includes companies trying to treat coronavirus, such as Roche Holding, GlaxoSmithKline, and AstraZeneca.
Miners are associated with the old economy, but firms digging for resources could be crucial to finding the materials we need for a low-carbon future.
“Commodities will remain integral in driving our economic response to climate change,” Admans said. “Many of the changes we are likely to see simply will not happen without continued investment in key raw materials.
“Manufacturers will continue to require lithium, cobalt, graphite, and nickel as the building blocks to produce energy efficient battery solutions.”
Companies in this sector include BHP Group and Rio Tinto. The MSCI Metals and Mining Index is down 9.12% this year, which might reflect both the falling oil price and concerns about mining firms’ carbon emissions.
With more people staying indoors and working from home during lockdown, demand on utilities was only ever going to increase, and DIY investors on the EQi investment platform are taking advantage.
Richard Pearson, director at EQi, says that trading activity in the sector is up 64% compared to last year, a figure he called “comparatively modest.”
“There were some standout firms, water company United Utilities saw its share trading on the EQi platform rise by 146%during lockdown compared with the previous three months, while Severn Trent recorded a 141% rise over the same period.”
The MSCI UK Utilities Index is down 9.01% in the year-to-date.