While equity markets took substantial hits as the coronavirus pandemic arrived in North America, technology and health-care companies have performed well and are set to be long-term winners for institutional investors.
“A lot of the digital transformation themes that we focus on and think about have really been highlighted, as many digital companies are really beneficiaries of working from home — cloud computing, accessing things remotely, online security, payments,” said Grant Bowers, senior vice-president and a portfolio manager in Franklin Templeton’s equity group during a webinar on opportunities in U.S. equities. He also noted software companies have been particular standouts.
He predicted the crisis’ impact on corporate behaviours will accelerate the adoption of technology. “We like fintech and the payment space and we think that the transition to debit or credit or electronic payments, while impacted in the near term, probably accelerates from here. . . . Cloud computing is another big one that we’re very focused on. As workers realize that a distributed workforce is really beneficial, you’re going to see a lot of companies adopt looser and more relaxed work-from-home rules and . . . cloud computing is a huge beneficiary.”
The pandemic will also have a huge impact on mobile technology, said Bowers, noting he expects to see an increased adoption of 5G. “Some of the towers are going to be big beneficiaries, some of the semiconductor companies are big beneficiaries.”
It has also underscored the increasing relevance of the health-care technology companies, he said. “We’ve liked health care a lot on the demographic backdrop of an aging population around the globe that is going to need new and innovative [methods of care], but I think this COVID-19 crisis has really brought forward and helped a lot of investors and consumers understand the power of the combination of technology and health care.”
“Gene sequencing, data analytics, advanced [research and development], these are all areas that are going to really benefit pharmaceuticals and biotech [companies] going forward, and those are some big areas that have really benefited us as we’ve gone through this period of volatility.”
While the consumer discretionary has been particularly hard hit by the virus with stores shuttering and people required to stay home, e-commerce companies are thriving in the new environment, especially Amazon.com Inc, noted Bowers.
Going forward, industrials are primed to be an interesting space, he said. “There’s going to be a tremendous change in our industrial landscape in the U.S. This crisis has exposed a lot of weaknesses in our supply chain, and we’re going to see, probably, a reshoring and bringing back home a lot of the U.S. supply chain for a lot of different areas of our economy. That’s going to create a big [capital expenditure] wobble and boom, probably out a couple of years . . . but I think this is a big theme that probably lasts for over a decade.”
Data on U.S. job losses in the wake of the coronavirus has been shocking, noted Bowers, but it’s important to remember this isn’t a traditional recession. Looking at the months ahead and the way out of the crisis, these spikes in unemployment won’t last forever.
“This crisis is not driven by a deteriorating economic period or asset bubbles or speculative excesses, it’s really . . . something we’re bringing upon ourselves. So our belief is that many of these job losses will be temporary.”
Some sectors will rebound more quickly than others, such as construction, whereas retail and restaurant businesses will probably experience a much slower return to normalcy, he said.
“I think you’re going to see a fairly rapid healing of the economy and a rebound as there’s pent-up demand. As soon as restrictions are lifted, I think you will see people come back with a very quick vengeance.”