Is your portfolio ready for the online future?
Head of Equity Strategy
Summary: COVID-19 will accelerate the online economy and digitalisation, reinforcing a trend that we've seen progress for more than a decade. Our view is that investors should have exposure to this trend and in this equity update we provide a large, inspirational list of companies that can offer just that. We've even broken down the list into different categories, so it's easier for investors to identify and gain exposure to specific industry groups.
Many commentators and influential people have spent months explaining to the public that things will never be the same after COVID-19. Sequoia Capital partner Michael Moritz said in the Financial Times recently that COVID-19 has fast forwarded the trend towards a large digital economy by maybe five years. Online businesses will thrive in the coming years compared to those that are more reliant on physical sales channels. Moritz also touches on the work-from-home switch and how this could have implications for commercial real estate in the future. If this holds, it will be a major blow to one of the best-performing asset classes in the past 50 years and something most investors would include in their portfolios in a low-interest-rate environment.
“Bosses will also be far more willing to embrace the idea that their teams don’t have to appear in an office just to demonstrate they are working. Millions have discovered the productivity boost gained from fewer social interruptions more than compensates for the loss of companionship. This doesn’t portend the end of offices, but it probably means a future in which managers are more willing to let their employees spend some time working from home. It’s easy to see how this could lead to a permanent crimp in the demand for commercial office space.” (Source: Financial Times)
Moritz is certainly correct about the online trend that has been under way for years. As the chart above shows, internet retailing has delivered 271% total return over five years compared to only 22.5% for global equities (MSCI World). Software and services companies have also enjoyed the tailwind delivering 135%. The media and entertainment industry group has only delivered 30%, but the historical comparison is difficult as the global equity indices saw a major classification change in late 2018, with internet companies such as Facebook and Alphabet being moved to this industry group. The media and entertainment industry group consists of: 1) media 2) entertainment and 3) interactive media & services (this is where Facebook, Alphabet and Tencent are placed), and it is especially in this third group where we’ll see future growth.
Everything related to the online economy seems to have better return on capital as the physical limits are less pronounced than for say airliners and miners. We believe the trend of digitalisation will continue over the coming decade and investors should have exposure to this trend in their portfolios. The table below provides a long list of companies offering exposure to many different sections of the online economy and increasing digitalisation. The combined market capitalisation represented on this list is $8.6trn across 69 single stocks, and we’ve also included four ETFs tracking some portion of this group for those that want a simpler way to invest in the overall trend.
|Ticker||Company||Country||Category||Rev. growth 1yr %||EV/EBITDA||YTD %||Mkt. Cap (USD, mn.)|
|BIDU:xnas||Baidu Inc||China||Media & entertainment||5.0||6.1||-25.3||32,672|
|BILI:xnas||Bilibili Inc||China||Media & entertainment||64.2||NM||35.0||8,684|
|IQ:xnas||iQIYI Inc||China||Media & entertainment||16.0||17.9||-22.5||12,002|
|NTES:xnas||NetEase Inc||China||Media & entertainment||-0.5||16.1||6.5||42,015|
|00700:xhkg||Tencent Holdings Ltd||China||Media & entertainment||20.7||23.0||6.5||492,838|
|UBIP:xpar||Ubisoft Entertainment SA||France||Media & entertainment||-12.6||13.0||10.6||8,997|
|VIV:xpar||Vivendi SA||France||Media & entertainment||14.1||14.0||-22.3||25,183|
|ATVI:xnas||Activision Blizzard Inc||United States||Media & entertainment||-13.5||21.7||9.6||51,253|
|GOOGL:xnas||Alphabet Inc||United States||Media & entertainment||17.4||16.1||-1.2||904,440|
|AAPL:xnas||Apple Inc||United States||Media & entertainment||3.7||15.2||0.1||1,270,654|
|EA:xnas||Electronic Arts Inc||United States||Media & entertainment||1.8||20.2||8.7||33,848|
|FB:xnas||Facebook Inc||United States||Media & entertainment||24.4||15.8||-1.5||576,288|
|NFLX:xnas||Netflix Inc||United States||Media & entertainment||28.8||58.9||28.3||182,637|
|PINS:xnys||Pinterest Inc||United States||Media & entertainment||51.2||NM||6.0||11,491|
|TWTR:xnys||Twitter Inc||United States||Media & entertainment||10.0||21.8||-13.1||21,844|
|B2W Cia Digital||Brazil||E-commerce services||4.3||62.5||16.5||6,985|
|QRTEA:xnas||Qurate Retail Inc||United States||E-commerce services||-4.3||12.3||-7.5||3,250|
|MELI:xnas||MercadoLibre Inc||Argentina||Online shopping||59.5||NM||5.9||30,227|
|ASC:xlon||ASOS PLC||Britain||Online shopping||17.2||17.5||-30.9||2,890|
|BOO:xlon||boohoo Group PLC||Britain||Online shopping||44.1||31.2||7.2||4,635|
|OCDO:xlon||Ocado Group PLC||Britain||Online shopping||9.9||252.1||31.7||14,712|
|SHOP:xnys||Shopify Inc||Canada||Online shopping||47.0||NM||54.3||71,757|
|WUBA:xnys||58.com Inc||China||Online shopping||18.6||13.1||-21.0||7,663|
|BABA:xnys||Alibaba Group Holding Ltd||China||Online shopping||41.6||26.8||-8.3||521,736|
|JD:xnas||JD.com Inc||China||Online shopping||24.9||22.6||17.5||60,772|
|03690:xhkg||Meituan Dianping||China||Online shopping||49.5||70.9||-1.2||75,668|
|PDD:xnas||Pinduoduo Inc||China||Online shopping||129.7||NM||20.1||54,408|
|VIPS:xnys||Vipshop Holdings Ltd||China||Online shopping||10.0||10.6||7.3||10,221|
|HFG:xetr||HelloFresh SE||Germany||Online shopping||41.4||385.2||67.6||5,669|
|ZAL:xetr||Zalando SE||Germany||Online shopping||20.3||30.6||-4.7||12,140|
|4385:xtks||Mercari Inc||Japan||Online shopping||44.5||NM||21.6||3,965|
|4755:xtks||Rakuten Inc||Japan||Online shopping||14.7||NM||-2.2||12,276|
|3092:xtks||ZOZO Inc||Japan||Online shopping||6.0||17.7||-14.4||5,150|
|AMZN:xnas||Amazon.com Inc||United States||Online shopping||22.7||29.4||23.7||1,140,222|
|CVNA:xnys||Carvana Co||United States||Online shopping||101.5||NM||-17.4||11,704|
|CHWY:xnys||Chewy Inc||United States||Online shopping||37.2||NM||47.9||17,220|
|EBAY:xnas||eBay Inc||United States||Online shopping||-0.5||10.1||9.2||27,508|
|ETSY:xnas||Etsy Inc||United States||Online shopping||35.6||56.8||45.5||7,643|
|W:xnys||Wayfair Inc||United States||Online shopping||34.6||NM||35.6||11,559|
|GPN:xnys||Global Payments Inc||United States||Payments||45.9||33.0||-10.9||48,744|
|PYPL:xnas||PayPal Holdings Inc||United States||Payments||15.0||37.2||11.5||141,462|
|SQ:xnys||Square Inc||United States||Payments||42.9||214.4||0.7||27,954|
|V:xnys||Visa Inc||United States||Payments||10.2||21.5||-6.4||342,347|
|DHER:xetr||Delivery Hero SE||Germany||Delivery services||100.1||NM||7.2||16,359|
|TKWY:xams||Just Eat Takeaway.com NV||Netherlands||Delivery services||82.8||NM||9.7||14,660|
|GRUB:xnys||Grubhub Inc||United States||Delivery services||30.3||35.7||-6.5||4,181|
|LYFT:xnas||Lyft Inc||United States||Delivery services||67.7||NM||-31.2||9,083|
|UBER:xnys||Uber Technologies Inc||United States||Delivery services||25.5||NM||-4.5||49,038|
|TCOM:xnas||Trip.com Group Ltd||China||Online travel||15.2||21.8||-28.0||14,329|
|MMYT:xnas||MakeMyTrip Ltd||India||Online travel||0.6||NM||-39.3||1,432|
|BKNG:xnas||Booking Holdings Inc||United States||Online travel||3.7||9.2||-29.5||59,299|
|EXPE:xnas||Expedia Group Inc||United States||Online travel||7.5||6.4||-37.5||9,420|
|TRIP:xnas||TripAdvisor Inc||United States||Online travel||-3.3||7.1||-39.5||2,464|
|ABDE:xnas||Adobe Inc||United States||Software and services||22.1||38.3||5.9||168,201|
|AKAM:xnas||Akamai Technologies Inc||United States||Software and services||7.2||14.3||13.0||15,800|
|CTXS:xnas||Citrix Systems Inc||United States||Software and services||5.2||23.2||32.3||18,063|
|MSFT:xnas||Microsoft Corp||United States||Software and services||13.5||19.7||13.7||1,356,222|
|ORCL:xnys||Oracle Corp||United States||Software and services||1.0||11.0||-1.4||163,198|
|CRM:xnys||salesforce.com Inc||United States||Software and services||28.7||42.9||-3.9||145,143|
|NOW:xnys||ServiceNow Inc||United States||Software and services||32.4||149.1||25.6||67,631|
|VMW:xnys||VMware Inc||United States||Software and services||12.0||22.8||-16.8||52,811|
|WDAY:xnas||Workday Inc||United States||Software and services||28.5||NM||-9.7||34,634|
|ZEN:xnys||Zendesk Inc||United States||Software and services||34.1||NM||-4.6||8,354|
|AVST:xlon||Avast PLC||Britain||Cyber security||7.8||14.9||2.2||5,882|
|CYBR_NEW:xnas||CyberArk Software Ltd||Israel||Cyber security||26.4||39.7||-16.2||3,725|
|FTNT:xnas||Fortinet Inc||United States||Cyber security||19.7||35.7||-2.3||17,039|
|PANW:xnys||Palo Alto Networks Inc||United States||Cyber security||20.3||164.8||-17.0||19,127|
|SPLK:xnas||Splunk Inc||United States||Cyber security||30.8||NM||-9.9||21,430|
|IBUY:xnas||Amplify Online Retail ETF||United States||Exchange-traded Fund||NM||NM||1.5||278|
|EMQQ:arcx||Emerging Markets Internet and||United States||Exchange-traded Fund||NM||NM||-3.1||450|
|ONLN:arcx||Proshares Online Retail ETF||United States||Exchange-traded Fund||NM||NM||12.9||87|
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.