Changing Habits

The world is now facing a long forgotten phenomenon, something which was last experienced a century ago- a global pandemic. This has forced us to change habits in an ever increasing globalised and interdependent environment. The situation we are now facing is impacting us on numerous fronts not just for health reasons but also economically and financially among others.

As the pandemic’s epicentre shifted from China to Europe and subsequently to the US, drastic measures such as partial or full lockdowns and other social distancing measures brought the world economies to a complete standstill. Understandably, the sectors which are in direct line of fire of such actions were the first to falter. As travel came to a halt, airlines and cruise lines registered drastic reductions in revenues – with the S&P 500 Airlines (Industry) ETF marking a negative 43.66% one year change at the time of writing. Manufacturing enterprises also encountered stumbling blocks especially in cross border deliveries of products.

A complimentary sector directly linked to travel is the hospitality industry. As revenues from international tourism dwindled, operators focused more on domestic tourism as restrictions were slowly lifted. This helped the hospitality industry to somehow soften the blow. In fact, the iShares STOXX Europe 600 Travel & Leisure ETF, which is composed of different companies operating in varying sub-categories, such as; hotels, airlines, restaurants and bookmaking companies, was less impacted compared to the S&P 500 Airlines (Industry) ETF mentioned earlier (25% down over a one year change).

Lower revenues and heightened uncertainty as to what the future holds have also led to a slowdown in spending and a greater focus on the need to save up for potentially worse times – definitely a big change in direction for a global economy, that is still coming to grips on what the future may hold.

Government interventions around the globe were also registered, primarily with the aim of safeguarding jobs and to give a lifeline to businesses. These interventions helped limiting job redundancies as much as possible but definitely not completely. The seasonally-adjusted unemployment rate in the Euro Area stood at 7.9% in July 2020, up from 7.4% in December 2019, while that in the US read 8.4% in August 2020 – up by 4.7 percentage points from the 3.7% rate registered in December 2019. This has also directly led to a forced change in habits, as the greater the number of unemployed, the lower the level of liquidity in circulation, thus resulting in lower expenditure levels.

Where possible, we have seen businesses adopt certain mitigation measures in an attempt to continue working business as usual. The primary measure was that of the introduction of remote working with the aim of restricting mingling of employees in order to minimise the risk of infections spreading at the workplace. This change has yielded numerous positive outcomes for the businesses involved, for employees and society in general. With remote working, businesses cut down on their overhead costs while employees were facilitated in enhancing their work-life balance, first and foremost due to less time spent commuting. Society at large also benefitted from this as less commuting means less cars on the road and therefore reduced pollution levels. Schroders plc, a British multinational asset management company, a month ago announced that it has shifted to flexible working on a permanent basis. The Company will be allowing employees to decide how best to support clients and the firm alike. This means that meetings at the office will still be possible but will not be a requirement. Such a stance is only possible by embracing and investing in the use of technology – a necessity and an important tool in conducting changes to the standard modus operandi.

Technology, particularly in the US, has been one of the best performing sectors over the past 12 months. Despite a sell-off which materialised early last week, the iShares S&P 500 Information Technology Sector ETF has in fact registered a 45.45% increase over this period. So what seemed all doom and gloom at the start of the pandemic was not applicable for all sectors.

As an investment advisor, in the past months I have witnessed numerous investors, typically interested in receiving income from their investments, putting their bias aside and accepting that income generation is not the only form of return from investments. These investors are now looking more at value stocks for improved growth prospects while also considering conservative asset classes like investment grade bonds or sovereign bonds for potentially lower volatility. This in itself is another change in habits. The question is will it be short-lived until the pandemic is over? One will have to see, but the habit which definitely should not change is that of considering a vast array of asset classes when investing, as over the longer run, diversification tends to yield the best results and greater peace of mind.

David Baldacchino, MSc Wealth Management (Edinburgh), B.Com (Hons) Banking and Finance (Melit.), DipFA, is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]