These are the areas investors should watch for pandemic transformations

Martin Pelletier: It’s worth keeping a close eye on areas likely to have the greatest impact on our lives and our portfolios

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While the level of technological disruption pre-virus was impressive, the acceleration of the digital transformation over the past few months from old world to new world has been astounding to watch.

The big questions everyone is asking are how sustainable is it and what will it look like going forward?

Investors are certainly betting big, sending price-to-sales multiples rocketing higher from 11 times for Facebook, 12 times for Microsoft to an astounding 17 times for Tesla. At the same time, there is much anxiety with Main Street trying to figure out the new normal and the social and economic implications that come with it.

In this regard, we think it’s worth keeping a close eye on three areas that are likely to have the greatest impact on our lives and potentially our portfolios: where we work and live, shopping and entertainment; and the next generation.

Work from home

We think work from home is a pandemic trend that is here to stay in some form or another. Just last week, Shopify, Canada’s largest company by market capitalization, made headlines when it announced it is vacating its Ottawa headquarters, accelerating its virtual office transition. This followed an earlier decision to allow the majority of its 5,000 employees to work remotely on a permanent basis.

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A recent survey released by ADP Canada showed 45 per cent of working Canadians would prefer to work remotely at least three days a week with more than a quarter wanting to have more flexible hours. However, 69 per cent of respondents are not willing to take a pay cut in order to do so.

One obvious and immediate impact is in the real estate market, where we are starting to see a move into the suburbs in search of bigger yards and affordable housing. Then there are those that have the ability to take it a step further to explore new cities offering a less expensive and improved quality of life. What does this mean for the downtown core of cities, the location of amenities, public transportation and personal vehicle use?

Education

The traditional university education may be another area facing disruption, especially if students can no longer enjoy the on-campus experience while still being charged full tuition. Many may also begin questioning the merit of on-boarding a pile of debt only to graduate in a changed economic environment where they may be unable to find employment.

Interestingly, tech companies are getting into education to try and make up for a lack of skilled workers in the new digital economy. Take Google for example, which just announced it is offering a six-month career certificate they are treating as equivalent to a four-year college degree.

Specifically, the company’s IT Professional Certificate will not only provide you with the training but also help you find a job with over 50 employers including “Walmart, Bank of America, and of course, Google” all for the low cost of $49 per month. Google also offers a number of online courses in data and tech, digital marketing and career development.

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Media, entertainment and shopping

According to the PWC Global Entertainment & Media Outlook 2020-2024, the pandemic “has accelerated and amplified ongoing shifts in consumers’ behaviour, pulling forward digital disruption and forging industry tipping points that wouldn’t have been reached for many years.”?For example, streaming and global data consumption is expected to show a near 34 per cent gain this year and will “more than double from 1.9 quadrillion megabytes (MB) in 2019 to 4.9 quadrillion MB in 2024.”

Applications such as Facebook, Instagram and Twitter are outlets that enable rapidly shared content creation that in turn attract users and then direct targeted advertisements with goods to be purchased on Amazon or other online shopping venues. Lather, rinse and repeat.

Unfortunately, the other side of this shift are the bricks-and mortar shopping malls, cinemas, global newspapers and consumer magazines unless they finally begin to pay attention and transform their businesses.

Overall, from a market perspective, we do worry about the extreme binary bets currently being made by investors aggressively buying into those areas of the market benefiting from the stay-at-home consumer and selling those areas being hurt by it. However, the world is never black or white so we wonder what will happen should some form of hybrid model take shape meaning the new world is mixed in with old world. Meanwhile, caveat emptor.

Martin Pelletier, CFA, is a portfolio manager at Wellington-Altus Private Counsel Inc. (formerly TriVest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.

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