The Ripple Effect: COVID-19 and Multi-Asset Portfolio Construction

In addition to its tragic human toll, COVID-19 triggered the sharpest recession in recent history, and efforts to control its spread have transformed the way we work, the way we shop and how we connect with others. We think these changes will last awhile—with implications for asset allocation.

A Big Leap Forward in Technology Adoption

Transactions and interactions quickly migrated to electronic platforms, accelerating existing trends. Digital capabilities like teleconferencing and contactless payments aren’t new, but social distancing jumpstarted the shift. As Microsoft CEO Satya Nadella put it in late April, “We’ve seen two years’ worth of digital transformation in two months.”

Early data suggest this may be an understatement. The share of online retail spending on credit cards has jumped by 11% in the US since COVID-19, more than doubling the 4% cumulative change over the past 3 years. (Display); UK data show a remarkably consistent trend—from a 4.6% gain in share over the last three years to 10.8% this year alone.

As business and family gatherings moved online, traffic on top videoconferencing platforms increased by 10 times (20 times for Zoom alone). Education and healthcare also saw accelerating online adoption. While telehealth has been a clear winner, healthcare companies are now talking about broader recognition of the value of robotic surgery.

Even as the level of activity normalizes, these behaviors are likely to be at least partly sticky—especially in areas where consumers and businesses find new ways of operating to be more convenient and efficient than the old ways. And the reopening of economies seems to have brought a resurgence in new cases, particularly in the US. If social distancing measures last for a while, changes in consumer, business and government behavior could become further entrenched.