Opinion: The post-Covid landscape

Anyone who has visited a supermarket recently will know that what shoppers most want is staples. Flour, pasta, eggs, rice: all have been in short supply. As we pick over the economic wreckage wrought by Covid-19, this perhaps provides a clue as to where investment returns might lie in future. 

Martin Davies, president and CEO of Westchester Investment Management, for example, makes the case for farmland. It has been a reliable store of value through times of economic tumult, he notes, exhibiting durable valuations and attractive levels of income, uncorrelated to competing assets. “The durability and negative correlation of farmland returns to economic cycles is driven by essentiality of food to survival to a growing population, supplied by a limited land resource base,” he says. 

This may seem obvious, but we do seem to have forgotten a lot of obvious truths in our drive to consume unimportant items and dash about to no particular purpose. And so, Davies is right to remind us of farmland’s utility. “Financial yields from farmland are inherently tied to food prices, which have not been negatively impacted during previous pandemics, and have been supported by stable supply-demand dynamics to date in the current pandemic,” he says. “Thus, farmland investments can be expected to remain a strong inflation hedge.”

Another sector thrown under the spotlight is healthcare. Michael Nicol, co-manager of the Kames Global Equity Fund, expects cuts to healthcare spending to be reversed in countries where the pandemic has highlighted insufficient healthcare capacity and resilience. “This may require a rethink in terms of some of the social contracts in place between the public and the health sector, especially with regards to the level of private-sector involvement in healthcare provision and the size of contribution that individuals expect to make,” he says. Nicol also sees technology and automation as sectors that will drive equity markets. “Our world will evolve further into the clouds,” he says.

These themes will resonate with many, as will his choices of ESG investing and deglobalisation. Killik & Co cites deglobalisation too, expecting factory automation equipment supplies, industrial software providers and developed market industrial property owners to benefit, with global shipping, contract manufacturers and emerging markets losing out. “The post-coronavirus landscape will be different to the world of yesterday,” says Nicolas Ziegelasch, its head of equity research. “The crisis has exposed flaws in global supply chains, the real cost of pollution, poor healthcare infrastructure, outdated working practices and fragile retail ecosystems.”

This brings us to ESG, which is starting to look like a bigger topic than any other, with some analysts calling for a radical rethink of capitalism. Just as we have undervalued basics such as food, we have undervalued “nurses and carers, shelf-stackers and cashiers, delivery drivers and fruit pickers”, contends Jon Mowll, responsible investment analyst at EdenTree Investment Management. To reset, he believes short-term profitability must be disregarded and the safety and wellbeing of everyone in a company’s sphere of influence, including in supply chains, prioritised. “It may be difficult for us, looking back, to understand how anything else was considered acceptable,” he says. 

If that sounds scarily worthy, consider the alternative. Behave as before? That Warren Buffett has sold all his airline stocks at a loss tells us that is not an option.

By Fiona Rintoul, editor-at-large at Funds Europe

© 2020 funds europe



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