As we enter 2022, a year in which investors may need to swiftly reassess their portfolios in the wake of US Congressional mid-term elections, it’s worth contemplating which sectors are more likely to outperform through the year – and why.
Naturally, many of the fastest growing segments of the economy in 2021 owe their recent success to the pandemic – or the government policy measures taken following the breakout.
Online stockbroking platforms, telehealth providers and food delivery services are among a raft of industry sub-sectors that have benefited from rising customer volumes. Of the three, telehealth providers are probably the most likely beneficiary over the long haul, even though they have been somewhat overshadowed by the focus on the biotech sector since the virus took hold.
The American Medical Association has revealed that telehealth useage among physicians jumped from 25 per cent in 2018 to almost 80 per cent during the first year of the pandemic. Capacity constraints already presented a serious challenge to healthcare systems across the globe prior to the outbreak, particularly in areas such as chronic care management and diagnostics.
Naturally, recourse to telehealth services increased dramatically simply due to lockdowns, and anecdotal evidence now points to a shift back in favour of in-person care. However, even if most patients prefer a more personal approach, it is probable that ever more healthcare providers will look to employ hybrid strategies to mitigate the impact of demographic change – a source of consternation long before the virus made its way over from Wuhan.
The take-up of remote healthcare services will also be accelerated by technological change. Nowhere is this better illustrated than the increased roll-out of wearable devices that can remotely monitor a patient’s health (anyone suffering from type-2 diabetes will be aware of the benefits this high-tech approach can bring).
Regrettably, it could be difficult for investors to get pure-play exposure this side of the Atlantic even though companies such as Sensyne (SENS) have been providing bespoke digital products to the sub-sector.
Curiously, the telehealth sector remains something of an outlier in terms of digitalisation, which explains why tech giants such as Alphabet (US:GOOGL) have been busy forging partnerships across the industry. Both Europe and the Asia-Pacific regions are relative laggards in the provision of remote patient monitoring compared with the US, but that should present further investment opportunities going forward.
On a related note, analysis from Gartner, a Stamford-based technology consultancy, suggests that planned infrastructure spending will continue to drive enterprise software sales through 2022, even though they have already boomed as the pandemic provided fertile ground for remote working and online learning systems.
It is not difficult to understand why this corner of the market will keep expanding, particularly if any of the choices that businesses have made to get through the pandemic become hardwired in their operations – home-working, video conferencing etc. Indeed, analysis from 360iResearch indicates that the global enterprise software market, worth an estimated $55bn (£39.9bn) in 2020, is expected to grow at an annualised rate of 6.37 per cent through to 2026.
Perhaps a more immediate consideration for investors is the likelihood of further rate rises through 2022. According to the Office for National Statistics, UK headline inflation hit 5.1 per cent on an annualised basis in November, the highest level since September 2011, while household discretionary incomes continue to be constricted by the high cost of energy. Earlier reassurances from the US Federal Reserve that inflationary effects were likely to be transitory seem to have been made more in hope than expectation.
Are there any silver linings here? Well, possibly, if gross domestic product stays on an upwards curve, increasing your exposure to the financial services sector may be worth considering, as history suggests that sector constituents have usually driven earnings whenever rates rise and the economy expands. The FTSE 350 financial services index is edging its way towards its level just prior to the outbreak, but earnings have been held in check by a lowly interest rate environment (and beefed-up capital requirements) since March 2009.
The trajectory of interest rates is beyond our control, but the question for investors is the extent to which industries buoyed by the pandemic will be able to hold on to any volume gains when governments finally pull measures designed to slow the spread of the virus. Conversely, we will also need to determine if sectors hit badly by the lockdowns, such as commercial property, will be undermined over the long term due to commercial and societal change. This will be the key consideration when the economy finally moves out of the shadow of the pandemic.
