PI Partnership – Newton Investment Management
FAST FORWARD: THE FUTURE OF INVESTMENT
Newton Investment Management looks at how investors should prepare their portfolios for the structural shifts caused by the Covid pandemic.
It was a year like no other. The events of 2020 changed the way we worked, the way we shopped and how we interacted with our friends and family. But the Covid-19 pandemic did not end when Big Ben signaled the arrival of 2021. Despite the start of a vaccination programme, its impact will continue to touch our lives for years to come. Making sense of Covid-19’s impact and how the challenges of tomorrow can be addressed was the theme of Newton Invest- ment Management’s annual conference. At Fast forward: a jour- ney to the future of investment Newton’s experts explained what changes could be waiting for us in the years ahead and what the implications could be for investors.
2020 – The future accelerated In 2020, the Covid pandemic forced schools and offices to close, grounded planes and sent unemployment to levels last seen during the great depression. To support their economy, governments had to borrow unparalleled levels of capital, while Zoom, TEAMs and Webex rose from obscurity to become con- duits of our professional and personal lives. For investors, it was an extraordinary year with the pandemic accelerating key trends that are set to become the structural norms of the global economy earlier than expected. For Ed Geall, a thematic research analyst at Newton, some of these key themes are clean energy, online education, digitalisation and China. Renewable energy shone through in 2020. Despite the challeng- es brought by the pandemic, more power was generated from cleaner energy sources than ever before. Political will had been moving in this direction in developed and emerging economies, but there were concerns that the infrastructure was not suffi- cient for governments to reduce their reliance on fossil fuels. Another trend accelerated by the pandemic is online educa- tion. When 1.2 billion children were forced out of the class- room last year, some educational boards, including those in the US and China, moved their teaching online. This structural change is forecast to almost double the value of the global on- line education market to $350bn (£264.6bn) in the next five years from $190bn (£143.6bn) in 2020, Geall said. Disruption to the hospitality sector has changed consumer experiences. Before the pandemic, people went to the cinema, went to see a show and enjoyed holidays in the sun. But con- sumers have had to find alternative experiences and so have embraced e-gaming and streaming TV services.
28 | portfolio institutional December–January 2021 | issue 99
“Before the pandemic three to four streaming subscriptions were considered a luxury,” Geall said. “But by March, it was increasingly seen as a necessity. From the Premier League to Tiger King, streaming services look set to dominate our experi- ential lives post-pandemic.” Covid also highlighted the West’s reliance on China in its sup- ply chain. The world’s second largest economy supplies 95% of ibuprofen and 90% of antibiotics to the US, for example. “When it came to critical imports of medical supplies, Western policymakers were left red faced,” Geall said. “When supply chains break down, as they did during the pan- demic, the chaos that ensued was the result of decades of sup- ply chain mismanagement,” he added.
The pandemic has accelerated digitalisation, while challenging globalisation, said Curt Custard, Newton’s chief investment officer. “It is important to look at the ebb and flow. The market- place has reacted to the pandemic by moving everything online. A lot of those behaviours will revert back. The high streets will open again. People will get back on planes again.” But some changes will be permanent. “A Zoom meeting will be more cost effective than putting someone on a business class flight to New York,” Custard said. Putting 2020 into context, Suzanne Hutchins, head of New- ton’s real return team, said QE did not help the real economy, but had inflated asset prices. “We expected, at some point, a fis- cal response,” she said. “The Covid pandemic, combined with the oil price crisis, has been that catalyst. “We feel as though the period of transition has accelerated and that huge structural changes are happening, not only from a climate change point of view, but also in terms of social unrest and distribution of wealth.” Even compared to the financial crisis, the events of 2020 are unparalleled, Hutchings added. She sees opportunities in emerging market debt and equity thanks to a weak US dollar and population growth. Factoring in the potential for rising price levels, she would also consider gold and inflation-linked securities, which perform better in inflationary environments.
Going digital
Digitalisation is not just about watching TV or playing games. Technology is reshaping the world and the lockdowns ordered in response to the pandemic have forced more people to work and shop online.
“In the first 10 weeks of the pandemic, the buying of goods online increased as much as it did in the previous 10 years,” said Jonathan McMullan, a research analyst covering technolo- gy, internet and media. Investible areas in the digitalisation trend for Newton include cloud computing, artificial intelligence, digital transformation [where technology is transforming business models], fintech
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