Digital Economy Strategy Perspective
Opportunities driven by the Digital Economy long-term theme remains intact • Strategy resilience driven by increase in demand for ecommerce • Rising trend of home working has been another positive driver • Stay-at-home conditions led to an increase in demand for digital media
What’s happening?
Global equity markets were negative in March, with the MSCI All Country World index declining 13%[1] in response to the economic fallout of the coronavirus. Monetary and fiscal supports have been put in place in many countries across the globe, supporting a small recovery towards the end of the month. A significant portion of the global population is now in some form of isolation, hoping for a slowdown in the spread of the virus, and it remains uncertain how long such measure will have to stay in place.
Equity markets have been both volatile and challenging over the past few weeks, as investors attempt to assess the impact and duration of the Coronavirus outbreak.
Portfolio positioning and performance
Whilst the Digital Economy strategy has been negatively impacted on absolute basis in March, it has proven to be more resilient than the broader equity market (MSCI AC World). We believe because it is exposed to a long-term secular growth theme and quality companies with strong balance sheets that the Digital Economy strategy has held up relatively well in this challenging environment.
We can also attribute part of that resilience to several themes that are played in the strategy, such as the importance of ecommerce (with notable contributions from online grocery retailer Ocado and global ecommerce leader Amazon), the unprecedented volume of people having to work from home (with positive contributions from cloud based connectivity software company Teamviewer, remote conferencing services provider Zoom and cloud-based security company Zscaler) as well as the digital media players which are benefitting from individuals being in confinement, such as streaming provider Netflix.
During the month we continued to reduce our exposure to the global online travel agent Booking Holdings. We have also reduced our exposure to IT Services companies such as Globant and Endava, whose business is somewhat dependent on employees being able to travel to customer sites. We started a position in video conference platform provider Zoom and cloud-based identity and access management company Okta. We sold our positions in asset tracking service provider Orbcomm and online brand management company Yext.
Outlook
The current situation has truly been a black swan event, something that was not expected, and even now it is hard to predict the duration or the magnitude of the effects. The impact to the global economy will not be fully known for some time, and the timelines for the issue to come under control are still uncertain. However, central banks and governments have stepped up with unprecedented stimulus measures in order to provide support to the economies.
We are aware that many of our long-term investments are now trading at very attractive levels, we are monitoring these events and if fundamentals continue to be robust, we will use any weakness in share prices as an opportunity to invest.
We firmly believe that the opportunity driven by the long-term theme, the Digital Economy, remains intact, and could even play out stronger, once the current turmoil is over. Digital Transformation is expected to be an important business focus for the coming years, and the portfolio remains well positioned to benefit from the trends associated with the digital economy theme, such as online commerce, digital media consumption, electronic payments and digital transformation.
[1] Bloomberg as of 31/03/2020
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