Change as the default

One year on, what might the pandemic mean for long-term investing?

In early 2020, few could have predicted Covid-19 would have such a widespread impact on our lives. The short-term effects have since been clear to see; extreme pressure on healthcare systems; tragic loss of life and dramatic changes for billions of people.

 

Beyond the devasting short term impact, I find it interesting to consider the medium to long-term effects of the pandemic. We are likely entering an era where uncertainty will become the norm. There is one change, however, that seems clear – everything is disruptible.

 

For many years, disruption has been at the centre of our research activities – a linking thread between disparate businesses. The pandemic appears to have provided a turning point in global attitudes to change, with industries previously viewed as ‘stable’ now facing crisis.

 

The changes to come

 

According to ILO figures, around 8% of the global workforce did their jobs primarily from home pre-pandemic. This has risen to around 25-33% in the last year depending on geographies.

 

This is a remarkable transformation with huge impacts on commuting; office space; city centres and infrastructure both physical and digital. We have already seen several high-profile companies make working from home a long-term default option and it seems highly likely that many businesses will move to a more hybrid model.

 

What might be the longer-term consequences of changes to how we work? There is anecdotal evidence across multiple countries of people relocating further away from city centres – if you don’t have to be in the office as regularly it is logical to try and maximise your real estate budget.

The greatest quality a growth investor can have is to be open-minded

Changes in how we work, how we commute and where we live seem very likely to have effects on urban transit systems. In the UK we have already seen numerous government bail-outs of London Transport as its revenues have collapsed but its ageing infrastructure needs ongoing upkeep. It would seem to me likely that urban transport reverts more to being a public good given the myriad financial and passenger behavioural pressures on it.

 

It also seems highly likely that global air travel will be affected for several years. International travel has always involved a trade-off between the discomfort of the journey and the convenience and time saved by flying. It would seem to me that the negative side of the ledger is likely to be significantly worse for several years. Combine a more unpleasant experience with growing environmental concerns and I wonder how many business trips will be deemed necessary when the use of video meetings has surged so much in the past year.

 

Globally we have seen an explosion in home delivery services and it is my strong belief that we are in the midst of a global revolution in how we eat. How we exercise has also seen profound changes with the pandemic causing many to see home training as not only possible but often preferable to going to a shared gym facility.

 

Potentially the most interesting long-term impact are the changes in behavioural barriers to adopting new ways of doing things. Effectively, we have had a simultaneous global experiment in uncertainty and out of that, have arisen both new ways of doing things and people adopting existing disruptive ways of consuming.

 

There can be little doubt that the subsequent reaction to the virus was done generally in South East Asia with an efficiency and collective will which Western polities can only aspire to. This is likely to see a continuation of much stronger growth rates in Asia not just last year but on an ongoing basis. The rapidity at which the world is moving eastward seems most likely accelerated by the pandemic.

 

Change as the default

 

I think it is no hyperbole to say that the world will be permanently changed by the events of 2020 and not least because it is a pandemic that has touched virtually every person on Earth.

 

For many years, I have preached that the greatest quality a growth investor can have is to be open-minded and this conviction has been hugely strengthened by the last twelve months. I cannot remember a brighter opportunity to embrace change and uncertainty.

 

Combined with the huge impact that sustainability will have on every industry over the coming decades, I am left thinking that the post-Covid normal will have change as its default which is an exciting prospect for any long-term growth investor.

Mark Urquhart

Partner

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