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Investing for a pandemic-proof portfolio

Owain Bennallack
·5-min read
Young woman wearing face mask while walking in the streets of London
Young woman wearing face mask while walking in the streets of London

The FTSE All-Share index is still languishing about 15% below where we began the year but it’s well up from the lows.

Investors in the US market – especially in its technology shares – have enjoyed an even stronger recovery from the doom and gloom that gave us the fastest bear market ever in March.

Partly this stock market bounce reflects investors coming to terms with the pandemic and its economic consequences. As rationality returns, we’re better able to reflect the balance of risks without our decisions being egged on by an overdose of fear and adrenaline.

But beneath the index level, when looking at individual stocks, it’s clear the market has also done a first pass at sorting winners and losers from the pandemic and its aftermath.

Shares in online retailers and Internet platforms haven’t just rallied because business boomed while we were stuck at home. Investors are also betting these firms have secured more of our attention for the future, too, as a result.

Similarly the travails of property firms and restaurants doesn’t just represent the loss of six months trading – or even the risk of bankruptcy. It also reflects that the business model of these firms may be impaired indefinitely.

How to own the future

If the world really is changed forever by Covid-19, then we might have only seen the start of a reordering in the value of many aspects of the economy.

And over the years I’ve noticed markets often overreact in the short term while under-reacting in the long term.

In short: it’s probably not too late to buy.

Here are three shares to give you a piece of the post-pandemic action.

“Bring me my stuff!”

Online retail is nothing new. But who didn’t buy more direct to their door during lockdown?

People tried new online shops as well as new categories – for example fresh food and clothing – and they also increased how much they spent. All of this bodes extremely well for online retail.

One way to play the theme is Ocado (LSE: OCDO). As well as its own online grocery business, Ocado sells retail logistics and distribution know-how to third parties worldwide. If the move to online shopping has jumped forward five years in six months, then despite its strong share price rise since March, Ocado could have much further to go.

  • Also consider Tritax Big Box and ASOS

“Give me more room!”

Rightmove (LSE: RMV) could win if the pundits are correct about our shifting priorities on home ownership. The theory – and early data – suggests many of us are now desperate for more outdoor space, whether gained by moving to the country or from having a garden or a balcony attached to our urban crash pads.

Of course, space is at a premium on this crowded and under-housed island. Not everyone will be able to afford to get the homes they want, and that could have an impact on valuations. But in turn this could result in lower prices that enable more first-time buyers to buy into the property market.

Builders could start to cater for this priority reboot by building properties with more breathing room – as well as home offices or more multifunctional spaces.

The bottom line is by turning over decades of established property trends – which had seen us move from suburbs to inner-city cores, and away from houses with unruly gardens to self-contained luxury flats – the property market has now been thrown into flux and perhaps upheaval.

It should all be good for companies that can profit from the resultant reshuffling.

  • Also consider M Winkworth, Persimmon

“I’m staying in!”

The UK stock market is poorly provisioned when it comes to technology firms.

There’s one area, though, where we’ve seen a renaissance in opportunities and that’s video game companies.

The UK has a long-established reputation for cutting-edge game development and several developers are listed on the stock market. They provide a way to profit from one of the most obvious corollaries of a fearful virus-infested world… the desire to hide away from it!

Frontier Developments (LSE: FDEV) could be a big beneficiary of our escaping reality. Its games are typically incredibly deep and involved. Some studios make mobile games than you play for 10 minutes on the bus on the way to the pub. Frontier creates games you play for months, immersed in an alternate realm. As a bonus it’s headed up by one of the UK’s greatest game makers, David Braben.

Of course, if we get a vaccine in the next few months then our entertainment choices will surely undergo some mean reversion. I’m no fan of crowds and noise, but even I’m itching to go to a music concert or a sports stadium, or even just an over-populated nightclub or bar.

But similar to the shift to online shopping, I suspect our stint in lockdown and its aftermath has created more game fans for life. Game developers will always be risky individual investments. But the future of the sector looks even brighter.

  • Also consider Codemasters, Team17, Keyword Studios

The post Investing for a pandemic-proof portfolio appeared first on The Motley Fool UK.

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Owain owns shares in Frontier Developments and Rightmove. The Motley Fool UK has recommended ASOS, Frontier Developments, Keywords Studios, Rightmove, and Tritax Big Box.

Motley Fool UK 2020