While the technology giants may get much of the attention, investment opportunities are plentiful in a broad market as broad as the US. These fund managers say there are three areas in particular that have seen a significant increase in demand (and spending), and may be worth a look:
Medical Devices Demand
Zehrid Osmani, manager of the five-star rated Martin Currie Global Portfolio Trust (MNP), has almost a third of his portfolio in the healthcare sector. Rather than large-cap pharma giants, however, Osmani likes medical technology businesses. “I don’t like pharma companies for their lack of growth, weak research and development productivity,” he says.
Medical technology, meanwhile, is a fast-growing part of the industry and its upward trajectory is set to continue as demand for devices intensifies, a trend that has only been exacerbated by Covid-19.
He likes Masimo Corp (MASI), a California-based company that develops and manufactures non-invasive monitoring devices and sensors. Its Masimo Sleep device, for example, monitors users' pulse, oxygen and respiration rates overnight to help them uncover anything that might be disturbing their rest.
The stock is the largest holding in Osmani's portfolio, accounting for 5.3% of assets, and is rated two stars by Morningstar analysts. “It’s an innovative company in a consolidated industry where there is a predictable amount of spending,” says Osmani. He likes that the company is the leading provider in the pulse oximetry space, where it provides a wireless device that patients can put on their finger to measure their oxygenation.
Morningstar analyst Aaron Degagne says the narrow moat stock has been affected by the coronavirus pandemic but expects this to be temporary. He adds: "The potential in Masimo’s product pipeline is underappreciated. An estimated $10 billion opportunity for products in development would provide diversification to its strong pulse oximetry business."
The 5G Rollout
One of the biggest growth drivers in the tech world is the rollout of 5G wireless networks. It's another trend that has been accelerated by the pandemic, as more people work and study from home and some businesses ditch their physical premises to go online-only.
Timothy Parton, manager of the Bronze-Rated JPMorgan American Investment Trust, has taken advantage of the sell-off to top up his position in tech firm Qualcomm (QCOM), which specialises in intellectual property, semiconductors, software, and services related to wireless technology.
“Not only are Qualcomm’s fundamentals strong, but we also see a promising outlook for long-term growth as we move towards 5G infrastructure globally,” he says. "The semiconductor company is often overlooked due to its historical dependence on handset growth but the initial deployment of 5G networks has started to show through in Qualcomm’s results this year and this is a trend we believe is in the early innings.”
Parton likes the company as he thinks he can weather the current turbulent environment well, thanks to its good management who is committed to strengthen its balance sheets.
The stock is rated two stars by Morningstar Analysts, indicated that it is trading above its Fair Value Estimate. Morningstar analyst Abhinav Davuluri says: "Barring legal or regulatory challenges, Qualcomm’s royalty revenue should grow along with the overall smartphone market."
Improving Hygiene
As the US economy re-opens, companies are increasingly focused on hygiene and providing a safe environment for both employees and customers. David Harrison, manager of the Rathbone Global Sustainability fund, believes this hygiene boom provides significant opportunities for companies such as Ecolab (ECL).
As the global leader in the cleaning and sanitation industry, Ecolab produces hygiene and water safety products across multiple industries. The company, which is rated three stars by Morningstar analysts, has seen a significant increase in demand for its products in recent months. “But there is a similar pattern emerging in the industrial and hospitality sectors as well, given the structural change in customer behaviour,” says Harrison. “Factories and restaurants are being cleaned significantly more since the virus emerged”.
What makes the company a viable candidate for a sustainable fund is the speed at which it was able to support its customers as the pandemic unfolded, says Harrison. The firm took measures such as extending payment terms and providing enhanced training on how to use its products more effectively. This did not, however, protect it from the effects of Covid-19 and its second quarter results showed operating income was down almost 60% year-on-year, largely due to its customers in the restaurant and hotel industries being closed.
“We think the economic moat around Ecolab’s business has strengthened in the past few months and that it is well placed to benefit from higher demand for its product in the next few years,” says Harrison.
Morningstar analyst Seth Goldstein adds: "Ecolab's focus on delivering savings on labour, energy, and water for customers makes the firm's products and services attractive even during an economic slowdown."
