How to ride the post-Covid investment wave

Coronavirus has been devastating for businesses. Many have had to close for months or work under draconian restrictions to help control the spread.

But 18 months on, a number of positive trends have emerged as companies have been forced to come up with innovative solutions.

Sustainable investing, technological changes, remote working, online businesses and a focus on healthcare solutions have become important themes this year.

We asked leading fund managers to highlight the sectors and individual stocks that are most likely to benefit over the coming months.

Sustainability

Lewis Grant, a global equities portfolio manager at Federated Hermes, believes the coronavirus pandemic has led to a social awakening.

“Consumers, governments and investors are more aware than ever of their impact on the planet and on society,” he said. “This has accelerated the transition to a more sustainable economy.”

Grant believes this trend represents an “exceptional market opportunity” across every sector, particularly in companies that are transitioning to become more sustainable.

“Renewable energy companies can make attractive long-term investments but investors should not lose sight of the price they are paying,” he said. “Finding tomorrow’s sustainable stories, rather than today’s, can often prove to be a more financially rewarding route.”

Healthcare

Andy Merricks, who runs the EF 8AM Focused Fund, likes companies involved in healthcare.

He believes the pandemic has shone a spotlight on this sector, which is why he favours the iShares Healthcare Innovation ETF (exchange-traded fund).

“It invests in companies involved in developing the drugs of tomorrow and in the development of medical devices for which technological advances are having a beneficial effect,” he said.

However, it’s not just human healthcare that’s caught his eye. He also personally holds global veterinary drug specialist Dechra Pharmaceuticals.

“It concentrates on animal healthcare and sells its products widely to the veterinary sector,” he added. “Pet healthcare is a growing trend and Dechra is one of the ways to participate in it.”

Hygiene

David Coombs, head of multi-asset investments at Rathbones, believes the public has become less tolerant of poor hygiene.

“They used to put up with some pretty horrendous toilets in pubs, service stations and even some restaurants but now demand higher levels of hygiene,” he said.

He is drawn to a number of specialist providers. “We own companies such as EcoLab that supply cleaning materials to hotels, hospitals and restaurants,” he said.

He also highlights FTSE 100 company Rentokil Initial, which provides a wide range of pest control, hygiene and workwear products and services.

Of course, Coombs acknowledges that the improved hygiene theme will also result in increased expenses for many public-facing businesses.

“It’s a cost to the hospitality trade that will either affect their margins or be passed on through higher prices, so there will be winners and losers,” he said. “I want to invest in the winners, which will be the specialist chemical companies and suppliers in this industry.”

Digitialisation

According to Randeep Somel, a fund manager at M&G, the pandemic has brought forward digitalisation, especially among older age groups, by at least two years.

“You’ve seen technology adaptation increase and that’s here to stay,” he said. “Anything with a digitalisation platform will benefit.”

Somel highlights retailers as an example. “The ones that didn’t have digital platforms are moving that way and the ones that are already there are beginning to face a bit more competition,” he said.

He also points out how technological advances have helped create the current shortage in semiconductors that are used in a wide variety of electronic devices.

“We’re just buying a lot more digitally equipped products, such as phones, televisions, refrigerators and electric cars,” said Somel. “The demand is by far outweighing supply.”

Capacity is increasing but not quickly enough.

“Semiconductors are now critical assets,” he said. “They’re, effectively, the new lifeblood of the economy. It used to be oil but now it’s semiconductors.”

Travel

There is a pent-up demand for holidays so companies operating in this area could do well, according to Leigh Himsworth, manager of the Fidelity UK Opportunities fund.

He highlights leisure group Jet2, which offers flights with Jet2.com and package holidays with Jet2holidays, as a prime example, alongside Easyjet.

“You have the double effects of pent-up demand and balance sheets in good order,” he said. “They should both be in a good position for a pick-up in bookings from consumers and businesses.”

However, Himsworth is keen to stick to short-haul operators while the coronavirus remains a global threat.

“There may still be a reluctance to long-haul [flights] and get caught somewhere that’s really difficult to get back from,” he says. “If you fly to Spain or France, it’s a lot easier to physically get yourself back.”