Development of multiple effective vaccines has given us hopeful visibility of the pandemic's remaining life cycle—and distribution, while initially disappointing, should be fine-tuned as we move forward. At some point, whether that be six or nine months from now, we'll be able to look back on covid-19 as a point in time, writes Matthew Benkendorf.
However, despite any positive rhetoric we might see, the greatest risk looming ahead of us could be a negative economic surprise. Until we get covid-19 out of the way, it's unclear how deep the economic hole is, and even less clear how quickly we'll be able to dig ourselves out of it.
As broadly announced by Biden ahead of his inauguration today, the fight against covid-19 is one of his key priorities.
Until we get covid-19 out of the way, it's unclear how deep the economic hole is, and even less clear how quickly we'll be able to dig ourselves out of it."
Additionally, Biden's presidency will bring a more environmentally focused agenda, which could see more pressure or scrutiny on sectors sensitive to environmental regulation, such as energy and commodities. Given healthcare has been a big Democratic focus, we could see more volatility in that sector, but the healthcare names with solid fundamentals should continue to do well.
Financials, which already have been under pressure, also could see some volatility, as these companies are less likely to get much reprieve or incremental improvement, from a regulatory standpoint, given the typically heavier hand of a Democratic administration.
Virus-induced disruptions have accelerated some important trends, such as the shift to e-commerce, that were already underway. The technology sector now accounts for 27% of the S&P 500 Index , with a small number of companies dominating performance.
It is a naturally consolidated space and many leading companies, such as Google, hold quasi-monopolistic positions. While large IT companies have recently attracted greater regulatory scrutiny, we do not think investors in US tech companies should be overly concerned.
We believe consumer behaviour will drive future growth in IT companies and we are closely watching how these companies are adding value for their customers.
From an investing perspective, with more uncertainty to come, e.g., changes in interest rates and political disruption that could shake markets and companies, it is important to focus on companies that are resilient to macroeconomic dislocations.
Regardless of the macro or political backdrop, drilling down into company fundamentals and looking for predictable long-term earnings power is key. Investors should look for companies with proven and repeatable models and established market-leading positions, and tune in more to the underlying status of specific businesses and their durable, sustainable growth prospects.
Matthew Benkendorf is CIO of Vontobel Asset Management's Quality Growth Boutique
