Hello and welcome to the Download. I’m your host, Dave Richardson, and we’re joined by Stu Kedwell, the co head of North American Equities at RBC Global Asset Management for Stu’s days. Stu, welcome to the podcast again.
Morning, Dave. Thanks for having me. Thanks to everyone for listening.
I know a lot of investors are watching the markets in both Canada and in the US and as a result of Covid-19, so many people working at home, so many behaviours being forced to shift by the self-isolation, quarantines that are going on around North America. Now we’re re-emerging from them, but while the quarantine, there were some areas of the market, particularly around technology, that have been big winners. From your perspective, Stu, as the economy reopens, as people start going back to work, do you think these areas are going to continue to be the winners? Are we going to see some other areas emerge? How do investors put all this together and think about it?
It’s a great question and something that we spend a lot of time thinking about. And you really have to almost go through company by company. As you point out, so far the stock market has really rewarded a bunch of companies that have really no exposure to anything that might be hurt by legacy issues of Covid and also have tools for what people perceive to be the new economy. I think the hardest question for those stocks — for there’s no question that they will grow — is whether or not the growth lives up to the very strong expectations in their stocks. That’s a different question. Where we find a lot of interest right now, we kind of ask ourselves the question: I remember growing up and someone would say, well, why do we do that, that way? And someone would say, well, we’ve always done it that way. And, you know, Covid kind of threw that under a bus. A lot of things got changed very quickly. And some of those things will have real persistence. And the stock market has been successful at trying to seek out winners and losers. Things like movie theaters and commercial real estate, there’s going to be some challenges for some of these assets because how we use those businesses might really change. It’s not to say that they won’t be useful. It’s just whether or not they will generate enough cash to pay for a return on the old values. And that’s really a question. The one area that we do find quite interesting is the acceleration in the digitization of the economy. It’s going to have big implications for financial services, for health care, for all sorts of service delivery. And what we might find, coming up the other side, using some of these digital experiences, is that the productivity of those businesses can really accelerate. One of the terms we’re using is digital real estate. While you may not go to a bank branch as frequently as you did, you might be on your app ten times a day. So how do you use that app to sell your services, to market your business, to provide advice? Those things are really going to change, but there’s going to be a lot of opportunities for traditional businesses as things reshape themselves.
And we were talking before about just that idea. If you go back to the origins of the Internet and the tech bubble of the 1990s — which many investors listening will remember — and a lot of excitement around some of these tech names, some of the ultimate winners were old and large corporations that figured out how to put these digital technologies in place and create different client experiences. Because of the effectiveness of those companies, in terms of being strong managers of their businesses with new technology, they came out as big winners out of the technological innovation.
No question, because they bring brands to the table. They bring people, management, employees and they bring resources. They have cash. So when you come at these businesses from a competitive standpoint, unless your first initial offering is so spectacular that it unseats them, they have a tremendous ability to take a small shot in the arm and say, wow, we’re going to get at that. And once they get at it, it’s pretty powerful on the other side. So, you know, we really think about those three attributes, an increasing research and development, your tech spend, those become assets to drive the future of your business versus, in the past, what some people thought as expenses to just drive processes inside your business. They’re going to drive new opportunities.
Wow. So a lot of things for investors to think about. And for professional investment managers such as yourself, these are the kind of things — these trends that are emerging out of any crisis or any particular period of innovation — these are things you constantly have to keep in mind to keep your portfolio ahead of the game. Stu, that was really insightful. Thanks again for your time.
Great. Thanks, Dave.