Joe Elegante, Senior Portfolio Manager, and Matthew Konosky, Healthcare Portfolio Manager and Senior Investment Analyst, presented at a webinar focused on how COVID-19 is affecting long-term trends across the world. Moderated by Uwe Rohrig, Senior Equity Specialist, here is a summary article of the event.

Key takeaways

  • This crisis has created dislocation and disruption, which creates opportunities for active investors;
  • Companies that have the ability to benefit from acceleration of long-term secular trends and have flexibility to adapt their business models to changing environments will be winners;
  • We may see a rethink of global supply chains and the onshoring of manufacturing in many countries;
  • Don't forget about the environment, longer term there is definitely  a reason to think the planet can benefit from reduced traffic, reduced pollution, a new focus on health and the creation of more sustainable jobs;
  • Development of a COVID-19 vaccine is clearly a key focus; however, there is a much broader effort going on related to medical treatment, testing and monitoring.

Joe Elegante, Senior Portfolio Manager

Defining events of the past, like 9/11 and the World Wars, reshaped societies and governments, and resulted in lasting behavioral changes.

The substantial capital market volatility, unimaginable business interruptions and disruptions caused by these events opens up major investment opportunities. We believe the COVID-19 pandemic will be a defining event that creates similar disruptions. Here are a few examples:

  • Unprecedented disruptions to work, education, travel and consumption patterns.
  • Global trade is down massively while nationalism is increasing, which may force a rethink of global supply chains and the onshoring of manufacturing in many countries.
  • Renewed focus on healthcare issues, as well as diets and obesity, and a shift toward telemedicine.
  • We are already seeing rapid adoption of technology and industrial changes. How and where we work and live may be permanently changed for large portions of our society.
  • High-rise buildings containing banks of lifts and tightly packed office workspaces, situated in dense city center spaces and supported by public transport, are going to be completely rethought. 

COVID-19 pandemic is accelerating long-term secular trends

E-commerce, automation, and the proliferation of artificial intelligence (AI), quantum computing and cloud services were already put in place for remote working and cyber security.

Automation and robotics in the industrial space were already growing, as was production automation, in sectors including auto assembly, protein production, and warehouse fulfilment.

The pandemic has accelerated these trends. This shift is pulling forward around five-to-10 years of investment, depending on the industry. That's because the incremental cost of outages and furloughing employees is too great for companies to bear, and the cost benefit of bringing in enhanced safety measures and employee testing justifies the extra capital spend.

Transportation will also change. Global air travel declined 90% at the worst of the pandemic. After 9/11 it took approximately four years for air traffic to recover.

Now, the need to socially distance will make air travel and other mass transit systems more cumbersome, likely slowing recovery for these sectors. It will also make people reconsider automobiles for marginal trips and certainly for commuting.

The pandemic will accelerate recent progress in autonomous driving, perhaps as an alternative to ridesharing for some. Interestingly, some of the technology powering the space launch at the end of May 2020 will soon be applied in the latest self-driving initiatives.

We are also seeing a change in the perception and value of healthcare, as well as an increased emphasis on health technology.

This is accelerating the notion of countries using healthcare as not only a service, but also a form of economic power, which can be used to gain influence over other countries. Obesity rates are also getting a lot of attention, due to higher morbidity rates in this cohort.

Matt Konosky – Healthcare Portfolio Manager and Sr. Investment Analyst

The healthcare industry has been relatively insulated from the substantial demand shocks we have seen elsewhere in the economy.

Many non-essential medical procedures have been postponed, but we consider this a temporary situation which will have relatively limited long-term impact on the sector.

At the same time, demand has increased in other healthcare categories, including:

  • Biopharma: A potential source of both a vaccine and therapeutics. Currently, there are over 315 ongoing clinical trials of therapeutics and vaccines;
  • Life sciences: Diagnostic testing for active infections and antibodies;
  • Healthtech: Increased investment in respiratory and patient monitoring systems as healthcare authorities around the globe strive to establish surge capacity ahead of a potential second wave in 2H20.

In our view, these tailwinds will likely persist for the next 12-18 months and perhaps much longer, there are a lot of areas in healthcare services that are in dire need of investment and the need for diagnostic testing is not going to go away if infection rates fall.

Vaccines are one part of a broader biotech approach

Efforts to develop a vaccine have captured headlines, raising the biotech industry's public image and moderating the near-term risk of significant drug pricing reform.

But vaccine development is just one part of a much broader industry effort, which includes a wide range of treatments, including antivirals, antibody approaches and immune modulating.

These efforts should put global health systems in a much better position to deal with future outbreaks which we hope will soon result in much lower mortality rates.

A vaccine candidate will probably be available by year-end, but many questions will remain

It is realistic to believe that we will have one or more vaccine candidates available, at least in limited quantities, before year end. It will take a further 18-24 months to manufacture the large number of doses needed.

In the meantime, there are key questions around vaccine development. Of the four or five broad approaches being attempted, we believe the most promising are around two in particular: viral-based approaches and genetic, or RNA, based approaches. 

Vaccinating a small group would go a long way to controlling future outbreaks

But vaccination is not an all or nothing proposition.

Even if you were to just vaccinate a small group of high-risk individuals, e.g. healthcare workers and first responders, this could go a long way to controlling community transmission and hopefully avoiding the need for full-scale global lockdowns in any subsequent outbreak.


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