Working from home not just a 2020 trend
The transition to working from home was one of the biggest investment trends of 2020. That theme is unlikely to be unwound any time soon.
Despite the welcome progress of vaccines for Covid-19, many people will be working from home throughout 2021, while many more will be trying to achieve a greater work/life balance by home working where possible, providing impetus for a number of stay-at-home themes to continue to deliver returns for investors.
Consumers have saved up hundreds of billions as a result of lockdown and while things might slowly start re-opening, many offices will still remain closed or restricted to lower occupancy levels for some time, with working from home remaining a core trend for many people.
Households will likely be spending large portions of their savings on home improvements and making their surrounds more comfortable, and there are many undervalued UK businesses set to benefit from this trend as the UK starts to re-open its high streets.
Large home furnishing and DIY brands like DFS, SCS and Topps Tiles are well-placed to deliver what people are looking for. They have maintained a large online market share for home improvements and a lot of their competition has not made it through the pandemic. Even as lockdown slowly lifts, many people will likely opt for home working where possible, and companies like these will be the ones people turn to as they look to improve their working and living environment.
It is not the same for all the sold-off sectors, however. We have already seen the UK government’s timeline for allowing foreign holidays slip, with continental Europe standing on the precipice of a third COVID-19 wave.
Travel for business will likely be limited in the future, with many face-to-face meetings able to be done virtually at a lower cost. The fundamental theme of the normalisation of working from home is a factor here, with businesses realising that many of their interactions can be performed at the same level of efficiency without having to physically be in the same room.”
More generally, the UK market remains undervalued, especially now there is greater clarity around the impact of Brexit, and as lockdown starts to ease.
The UK market is cheap on an international basis, with Morgan Stanley data suggesting the UK is at a 25% discount to MSCI Europe, on a blended Price to Earnings, Dividend Yield and Price to Book Value basis, its biggest discount since the start of the millennium.1
The uncertainty around Brexit has reduced following the deal with the EU, with companies adapting to a new way of operating, and we expect this to be reflected in prices during the coming year. Indeed, it can already be seen in the currency market with sterling’s recent recovery against the dollar.
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