No longer business as usual

As the world unites to stem COVID-19 infections with unyielding focus, the global pandemic has also triggered some soul searching about key vulnerabilities and challenges in societies that are all too obvious to ignore. As centuries of change have shown, humanity will not necessarily yield to these challenges, but will only accelerate the pace of finding solutions to create a better and more resilient world post COVID-19. Indeed, existing secular trends are getting a boost in the time of coronavirus.

From physical to digital

For one, in the era of physical distancing, the need for connection and to be connected has become ever more important. Social distancing has upended the way businesses operate, manage limited resources, communicate with employees and customers and conduct sales. As cities lock down, the adoption rates for e-commerce, digital entertainment, remote communication software and the like have ballooned.

In a world gone remote, the services sector faces a huge challenge, especially considering that these businesses were built around human interaction and face-to-face contact. In the absence of a quick digital makeshift solution, businesses could fail to sustain their operations during a time when people are asked to stay at home. The vulnerabilities laid bare from this experience will only accelerate the pace for change. As a perennial secular theme, the shift from physical to digital has always been in play with the rise of the FAANG tech titans. While the term “digitalisation” might have been treated with somewhat fleeting disregard as yet another industry buzzword, it has now turned into a clear business imperative.

Yet digitalisation is more than just creating an app. Other key changes include shifting technology infrastructure from hardware and software to the cloud, enabling comprehensive mobile and online services and creating a seamless experience between physical and digital channels. Companies providing the underlying technologies to support this transition stand to gain from increased demand. Those might be the winners of the future.

The need to feel safe in cyberspace

The need to embrace technology to communicate in the time of coronavirus has also introduced concerns about security. With business leaders having to make and communicate high stakes decisions remotely over Skype, Facetime and Zoom, these communication channels must be safe from threats that may compromise information security. With home-based learning likely to be a fixture of the education landscape, the need to keep children safe from cyber threats is a clear imperative as well. “Enabling” technologies supporting these communication channels and other digital initiatives must be accompanied by a robust security infrastructure. As the world goes digital, the demand for cyber security will only increase.

Changing the way we make things

Aside from communications, the coronavirus is also causing businesses to reassess how they produce things. When the world’s manufacturing centre – China – announced a complete lock down of Hubei in light of the coronavirus outbreak, the world  saw unprecedented disruptions to supply chains and manufacturing almost ceased completely. How could production continue with a workforce plagued by disease and illness? How could other manufacturing processes proceed if one step of the production chain is blocked? Coming out of the crisis, manufacturing companies are likely to seriously reassess their vulnerabilities to potential shocks in the labour supply as well as potential shocks to supply chains which have increasingly become globally integrated. The result might be greater localisation in production and the employment of more technology-intensive production methods.

Indeed, the COVID-19 pandemic might trigger the exploration into various options that can help reduce reliance on physical labour. After all, companies with automated factories were the ones that were better able to maintain production through the crisis, even as workers were made to stay at home.

It is quite likely that the global pandemic will quicken the pace of the fourth Industrial Revolution, where businesses increasingly marry automation with data in manufacturing technologies. Increasing investments into robotics and automation may result in the proliferation of “smart” factories, in which cyber-physical systems are used to communicate and cooperate with each other and with humans in real time. These will have long-term consequences on the global manufacturing sector, in the form of processes, employment and productivity.

Spotlight on genomics

Meanwhile, on the healthcare front, the full scale of human scientific ingenuity has been directed towards finding a treatment drug and a vaccine for COVID-19 and researchers have, in large part, benefitted from the advancements made in the genomics field. The genome of the coronavirus was sequenced swiftly which allowed the scientific community to study its properties and determine effective mitigation steps. There is also strong demand for portable gene sequencers that can help doctors test and diagnose patients quickly as the outbreak spreads. Genetic sequencing has been and continues to be vital to public health officials and researchers in diagnosing and tracking the evolution of the virus and in coming up with effective control strategies. It is just as important or much more so for the development of a vaccine.

Even in good times, genomics is an interesting field of research which is pregnant with the potential to uncover life-changing treatments for illnesses that were once regarded as incurable. Investors have taken notice.

Yet, it is important to note that there is always a risk to clinical research. To researchers, clinical failures offer useful information about what doesn’t work. Yet the market does not view this too kindly. Just look at the stock price of Gilead Sciences as evidence. The stock price surged on speculations that the experimental antiviral drug remdesivir was effective to treat COVID-19 patients. However, when results of the first clinical trial disappointed, the stock price of the drugmaker was punished. As such, investors thinking of engaging this sector should do it through a diversified portfolio of companies to manage the risks associated with the failure of clinical trials .

How to invest in a future world?

These long-run secular trends, likely accelerated by the COVID-19 pandemic, provide ample opportunities for investors seeking long-term returns. The challenge has always been identifying investable opportunities in discoveries and innovations that have the potential to change our world in a sustainable way. After all, retail investors do not have the same access to information as the typical venture capitalist does. More importantly, most retail investors might not have deep pockets or the financial wherewithal to absorb the losses should these investments fail. Research and innovation are risky business as is investing in niche subsectors.

Yet, in the past decade or so, we have seen the emergence of ETFs tracking a subset of publicly listed companies that create products or services which more directly drive the progress of these long-term secular themes. This provides an attractive avenue for investors to participate in the growth of these businesses, whose products and services might yield enormous future benefits. A diversified portfolio of company names mitigates concentration risks in any one company.

Combining different secular themes expressed by different ETFs in varying proportion, helps reduce concentration risks in any one theme or company. The risks associated with an equities portfolio still remain, however. Returns are never guaranteed, and companies that entirely operate within particular niche sub-sectors or are involved in the business of innovation naturally carry risk.

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