Friday Highlight  

Why Covid-19 has driven thematic investing

Healthcare innovation is here to stay

Medical innovation is a longer-term theme that is important to both patient outcome improvement and cost reduction. In the US, 20% of GDP is already spent on healthcare. 

That figure cannot continue to grow indefinitely.

We see medical innovation as an important structural trend that will present compelling investment opportunities.

While this theme was well-established prior to the pandemic, the search for a vaccine and treatment for Covid-19 has increased coordination between the private sector and the US Food and Drug Administration (FDA).

This public sector support for innovation is likely to continue driving this theme even after the crisis. 

Sustainable investing not just for bull markets

The trend towards sustainable investing was already well in motion before the pandemic, and fund flows speak to the acceleration of this trend.

The idea of sustainability as a luxury, employed in bull markets but discarded in bear markets, continues to lose credibility.

High-quality management teams focused on sustainability are more likely to build businesses that are resilient in a downturn, and this was clear in the depths of the market sell-off in March. 

The crisis has also brought into sharp focus the intersection between public health, migration and climate change.

Climate change induced migration will have far reaching effects for disease control, and public and private entities will need to co-operate to understand and manage these dynamics. While this trend was in place before the pandemic, a renewed sense of urgency has brought these issues to the forefront. 

Investing in individual themes or a collection of high-conviction themes is increasing in popularity, and the current environment is only likely to continue to speed up this trend.

While the pandemic is presenting a multitude of challenges for society and investors, thematic investing benefits from explicitly acknowledging that the world has become more complex and interconnected.

This has only served to bolster the argument that investing for the long term in structural themes that span regions and sectors is an important area for investors to consider. 

Isabella Labak is a multi-asset investment director at Fidelity International