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COVID-19 has changed the world. Now we are asking, what will the world look like as the pandemic evolves. How will life be different at work, home or play? And what investment opportunities may arise? Damian Fernandes, portfolio manager at TD Asset Management weighs in.
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- When you think about how life is changing and what the changes could be, what lasting changes could be there in terms of work, home, and play, I mean, let's start with work. Because you and I were just chatting that how we work, obviously, the time we spend working is changing right now.
- Oh, yeah. I think that's a great point, Kim. Before work from home, right, now, for example, you and I are having this conversation in, you know, we're both remotely. And it's seamless. It's as if we're doing it in the studio.
So we are working. But imagine-- and now working from home has become socialized. We've been doing it for three months. And the easiest way I can tell you this is that, Kim, imagine I gave you four extra days of vacation a year. And you'd say, Damian, how is that-- what do you mean? That's what I just mean.
And even if we start-- even if we go back to work, if we start spending some of that more time working from home, for example, in Canada, the average commuting time is 26 minutes. If I do that twice a day and I add in lunch, even if I work from home for 20% of the time I did, that's equivalent to four extra days of vacation. You know, four extra time days of vacation that you could spend with family, or on recreational activities. Or even just, I guess, reading a book or something much more subtle.
- And I guess all that requires technology and infrastructure. So that's going to drive demand on that front.
- Oh, completely. And look, I was talking from the social aspect of working from home. From the investment aspect, this has just accelerated spending on-- in a few companies. Imagine this. If you were a company before and you were deferring investments in cloud applications, or security, or enabling employees to work from home, this has just brought that and accelerated that spend.
Right now, if you're a cloud provider, whether you're Microsoft or Amazon, you're seeing significant demand as corporates are looking to provide data and access to their employees from remote environments. This is-- you've pulled forward a lot of this demand.
So whether-- and it's even something as simple as, you and I right now are using our devices to communicate. That is introducing wear and tear on our devices. You could see a replacement cycle for Apple take place here too. And so, very positive about both technology and the software that enables work from home to facilitate, and from the hardware aspect. Because I see all this demand continuing.
- So Damian, that's the investment implication for work and working from home. What about how we spend? Because for those that haven't lost jobs, there's a lot of pent up spending, because we're not going out and spending all the time.
- Sure. I think-- look. Every recession exacerbates certain trends. So e-commerce was in play before this. You've just seen acceleration in e-commerce sales. But something more subtle has taken place too, right? We're spending more time at homes. Our homes are becoming our castles.
They're protecting us from the virus. We're spending more time in them. So we are naturally going to look to improve them. Whether that be making home improvements with something like Home Depot, those lineups that we see on our social media, people lining up outside Home Depot. That's real demand.
And it's real demand up because of people fixing up their homes because they want to improve their surroundings, because they're spending so much more time in it. Something as simple as painting your walls to provide more ambiance in your house because you're spending more time. Sherwin-Williams, that operates in an oligopoly for paint, benefits.
So I think what you're going to see is that a lot of those consumption dollars that we spent on travel, on experiences, are going to move towards spending on home, more than home improvement, but just home goods to improve our surroundings in this place we're spending most of our time in right now.
- What's the investment thesis for healthcare services? I know I've done a ton of doctor phone calls, and I know that's been changing too. What do you see there?
- Well, I think that telehealth has-- telehealth in general has a lot going for it right now. Just because we do know that it's always been there. You know, companies that, for example, Teladoc in the US, that offer you the ability to speak to a nurse or speak to a doctor on the phone.
But a few things are coming together right now. For example, most people, most patients, potential patients, don't want to walk into their doctor's office or can't. And they're being enabled by technology. So even diagnostics are more-- if you have video cameras or if you have the ability to do so, you can actually, you know, not-- you can actually speak to a doctor virtually, and actually have a much better or a seamless diagnostic experience or speak to a nurse on the phone to walk you through it.
I think, like I said, I think the virus probably-- there is some real challenges. But certain industry groups the demand function has actually been pulled forward. Because, you know, we've just become more familiar with it and it makes sense.
- I only got about 20 seconds, Damian, this last one. But on one hand, when you look at the future, the markets have really rallied. We've seen a lot of money come into the markets. On the other hand, we're still waiting for the second, third wave of coronavirus and job losses to happen. So which one?
- Look, I think, Kim, we've spoken before. I can't tell you where markets are going to be in the next six months. But I can tell you this. You know, we talked about the good jobs number. There's still a 13% unemployment rate.
What that means is that the central bankers are-- because unemployment is going to be higher for longer, rates are going to be lower for longer. We've talked about lower for longer. Think about rates being significantly lower for a much more, I guess, drawn out period of time. Which means the alternative.
Companies that can generate higher levels of cash flow and use those cash flows to pay for dividends. Two, three years from now, as those companies see-- as things have returned back to normal they've seen their cash flow levels return back to normal, and they're still paying you dividends and buying back shares, I think those stocks, the ones we've talked earlier on in this segment, I think they're still going higher, or they're biased higher because the alternative is rates that are still really low.
- Damian, thank you.
- You're welcome.
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- Oh, yeah. I think that's a great point, Kim. Before work from home, right, now, for example, you and I are having this conversation in, you know, we're both remotely. And it's seamless. It's as if we're doing it in the studio.
So we are working. But imagine-- and now working from home has become socialized. We've been doing it for three months. And the easiest way I can tell you this is that, Kim, imagine I gave you four extra days of vacation a year. And you'd say, Damian, how is that-- what do you mean? That's what I just mean.
And even if we start-- even if we go back to work, if we start spending some of that more time working from home, for example, in Canada, the average commuting time is 26 minutes. If I do that twice a day and I add in lunch, even if I work from home for 20% of the time I did, that's equivalent to four extra days of vacation. You know, four extra time days of vacation that you could spend with family, or on recreational activities. Or even just, I guess, reading a book or something much more subtle.
- And I guess all that requires technology and infrastructure. So that's going to drive demand on that front.
- Oh, completely. And look, I was talking from the social aspect of working from home. From the investment aspect, this has just accelerated spending on-- in a few companies. Imagine this. If you were a company before and you were deferring investments in cloud applications, or security, or enabling employees to work from home, this has just brought that and accelerated that spend.
Right now, if you're a cloud provider, whether you're Microsoft or Amazon, you're seeing significant demand as corporates are looking to provide data and access to their employees from remote environments. This is-- you've pulled forward a lot of this demand.
So whether-- and it's even something as simple as, you and I right now are using our devices to communicate. That is introducing wear and tear on our devices. You could see a replacement cycle for Apple take place here too. And so, very positive about both technology and the software that enables work from home to facilitate, and from the hardware aspect. Because I see all this demand continuing.
- So Damian, that's the investment implication for work and working from home. What about how we spend? Because for those that haven't lost jobs, there's a lot of pent up spending, because we're not going out and spending all the time.
- Sure. I think-- look. Every recession exacerbates certain trends. So e-commerce was in play before this. You've just seen acceleration in e-commerce sales. But something more subtle has taken place too, right? We're spending more time at homes. Our homes are becoming our castles.
They're protecting us from the virus. We're spending more time in them. So we are naturally going to look to improve them. Whether that be making home improvements with something like Home Depot, those lineups that we see on our social media, people lining up outside Home Depot. That's real demand.
And it's real demand up because of people fixing up their homes because they want to improve their surroundings, because they're spending so much more time in it. Something as simple as painting your walls to provide more ambiance in your house because you're spending more time. Sherwin-Williams, that operates in an oligopoly for paint, benefits.
So I think what you're going to see is that a lot of those consumption dollars that we spent on travel, on experiences, are going to move towards spending on home, more than home improvement, but just home goods to improve our surroundings in this place we're spending most of our time in right now.
- What's the investment thesis for healthcare services? I know I've done a ton of doctor phone calls, and I know that's been changing too. What do you see there?
- Well, I think that telehealth has-- telehealth in general has a lot going for it right now. Just because we do know that it's always been there. You know, companies that, for example, Teladoc in the US, that offer you the ability to speak to a nurse or speak to a doctor on the phone.
But a few things are coming together right now. For example, most people, most patients, potential patients, don't want to walk into their doctor's office or can't. And they're being enabled by technology. So even diagnostics are more-- if you have video cameras or if you have the ability to do so, you can actually, you know, not-- you can actually speak to a doctor virtually, and actually have a much better or a seamless diagnostic experience or speak to a nurse on the phone to walk you through it.
I think, like I said, I think the virus probably-- there is some real challenges. But certain industry groups the demand function has actually been pulled forward. Because, you know, we've just become more familiar with it and it makes sense.
- I only got about 20 seconds, Damian, this last one. But on one hand, when you look at the future, the markets have really rallied. We've seen a lot of money come into the markets. On the other hand, we're still waiting for the second, third wave of coronavirus and job losses to happen. So which one?
- Look, I think, Kim, we've spoken before. I can't tell you where markets are going to be in the next six months. But I can tell you this. You know, we talked about the good jobs number. There's still a 13% unemployment rate.
What that means is that the central bankers are-- because unemployment is going to be higher for longer, rates are going to be lower for longer. We've talked about lower for longer. Think about rates being significantly lower for a much more, I guess, drawn out period of time. Which means the alternative.
Companies that can generate higher levels of cash flow and use those cash flows to pay for dividends. Two, three years from now, as those companies see-- as things have returned back to normal they've seen their cash flow levels return back to normal, and they're still paying you dividends and buying back shares, I think those stocks, the ones we've talked earlier on in this segment, I think they're still going higher, or they're biased higher because the alternative is rates that are still really low.
- Damian, thank you.
- You're welcome.
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