The COVID-19 pandemic has seen more investors, retailers, and others going online, according to portfolio managers
Life has changed for everyone in 2020.
From grocery store workers to financial advisors, everyone is looking at the world through a new lens because of COVID-19, including Putnam Investments, an investment management firm out of Boston, MA and sub-advisor to Mackenzie US All Cap Growth Fund.
According to Richard Bodzy, portfolio manager at Putnam, some of the bigger changes in 2020 can be seen in the short-term swings in the market.
“For good reason, obviously, 2020 has been a unique year, but it feels like maybe it’s been four or five years compressed into one,” he joked.
The rising impact of retail investing, the unique nature of US stimulus measures in 2020, and the need to maintain a low interest rate environment have had a notable impact on the investing environment.
Greg McCullough, assistant portfolio manager at Putnam, noted that with stimulus cheques provided by the government, a large number of people have been using the money to invest in new online retail trading platforms.
“Given the stay-at-home mandates, discretionary income for a big part of the population has increased,” he said.
Many of those who received a stimulus cheque were in dire circumstances as a result of COVID-19, and used the funds for everyday essentials, however there was a portion of the recipients he says, that used the money to invest.
“Many people, either through government stimulus, or the fact that their own discretionary spending in their household has been cut… have turned to the markets,” he explained.
He noted the market has also provided a kind of distraction, or a form of entertainment, as people are able to watch their investments grow.
McCullough added the volume of trading options for these types of accounts has grown as well.
However, one notable downside of this phenomena is that it has contributed to the volatility of today’s market, and some of the “swings we’ve seen in the market for the last few months.”
Another notable trend he pointed out is the robust growth of companies with a strong digital presence this year.
“These are companies that have been able to capitalize on what is obviously a very different economic landscape, very different consumer purchasing patterns,” he explained.
Additionally, companies that put a priority on “digital first” before the pandemic already had a connection with their customer base and fared well as the landscape changed.
“Those are businesses with massive scale. You think of the big tech names in the US, it’s not just those businesses, but all businesses that really prioritized the digitization of their business have been able to manage through this crisis better than most,” said McCullough.
He added businesses which didn’t have a direct connection to online retail and were instead using a third-party distributer to get to market, have seen a larger negative impact from COVID-19.
One example Bodzy gives of a company moving away from third-party retailers is Nike, which has seen heavy investment in its own stores and online technology.
Bodzy explained they have spent a lot of time this year looking at companies which have come out of the other side of the pandemic stronger. There will be share takers.
“Chipotle is one that had 8 million rewards members signed up at the beginning of the pandemic,” he said. “At this point, they’ve more than doubled that figure during the pandemic.”
But, Bodzy acknowledged, at some point there will be a vaccine for COVID-19, and there will be an economic reopening with it.
“At that point there are likely some very depressed cyclicals that’ll have a nice year in 2021 off of a very depressed base,” he said. “Our focus is to look for strong investments that can perform well over the course of a market cycle.”
He further explained that Putnam invests in companies which can structurally grow above market rates every year, and don’t have “wild fluctuations.” They prioritize durability of growth and a narrow range of outcomes.
After what has been a unique year, McCullough says if 2020 has taught him anything, it’s to expect the unexpected.
“This year has been a bizarre year in so many ways. Who knows what the future brings, but we built the portfolio so it can perform well in a variety of market environments... we’re ready for anything,” he says.
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