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Looking Ahead to a 'New Frontier' for Investors

 

June 5, 2020

 

IF HISTORY IS ANY INDICATION, the coronavirus pandemic will lead to a new era of technological progress and economic opportunity. “A look at the last 100 years shows that deep disruptions give way to innovation that benefits households, businesses and investors,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Often, it’s the very disruptions—whether disease, war or depression—that pave the way for creativity and growth, he adds.

 

“As we look to the other side of the pandemic, we anticipate a period of renewal driven by digitization, automation, new investment in healthcare infrastructure and other forces,” says Ehiwario Efeyini, Director and Senior Market Strategy Analyst, Chief Investment Office, Merrill and Bank of America Private Bank. For investors, Efeyini adds, “one of the main lessons from history is the importance of recognizing new trends that may be obscured by more immediate challenges.”

 

“We anticipate a period of renewal driven by digitization, automation, new investment in healthcare infrastructure and other forces.” —Ehiwario Efeyini, Director and Senior Market Strategy Analyst, Chief Investment Office,

Innovations of the past
In the latest CIO report, “The New Frontier: A History of Economic Crisis and Recovery from 1918 to COVID-19,” Efeyini writes that people living through the culmination of World War I and the start of the Spanish Flu pandemic in 1918 may have seen little cause for optimism. Yet out of those events came sweeping advances in telecommunications, manufacturing, media, arts and entertainment. From 1920-29, global GDP grew at 4%1 per year and stocks on the Dow Jones Industrial Average produced annualized returns of 21.2%.2 Similar recoveries followed shocks such as the Great Depression and World War II, the attacks of 9/11 and the global financial crisis of 2008-2009.

 

What’s likely ahead after coronavirus?
Similarly, the challenges of the current pandemic may lead to more automation and robotics in everything from manufacturing to retail, transportation, agriculture and food production, Efeyini says. “As one example, a renewed emphasis on hygiene will favor robots over humans in packaged food preparation.” We’re also likely to see greater use of medical technologies that support remote patient diagnosis and monitoring. And cloud computing adoption should grow due to increased reliance on telecommuting, distance learning and the need for ever greater data storage. Other areas of innovation include online retail and genomics, including advanced techniques for treating diseases.

 

Potential opportunities for investors
These developments may present long-term opportunities for investors in areas such as healthcare technology, biotechnology, pharmaceuticals, information technology and systems software, Hyzy believes. Other promising areas include communications services, internet and direct retail marketing. The new era favors large U.S. companies, he says. And while a well-balanced portfolio includes a variety of stocks, bonds and other assets, “a higher than traditional exposure to stocks will, in our view, position investors to potentially benefit from this new frontier.”

1 Average of U.S. and Western Europe. Equity return is Dow Jones Industrial Index price return to 1929 peak

 

2 Sources: Chief Investment Office, Maddison Project Database, Bloomberg. Data as of 2020.

 

Information is as of 06/05/2020

 

Opinions are those of the author(s), as of the date of this document and are subject to change.

 

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

 

This material does not take into account a client’s particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill financial advisor.

 

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group (“ISG”) of GWIM, a division of Bank of America Corporation (“BofA Corp.”).

 

BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation.

 

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

 

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

 

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

 

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

 

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.

 

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