By Gal Greene
While those with a significant sum of money to invest have lots of choices, the crisis caused by the outbreak of coronavirus across the world has seemingly narrowed them considerably. Stock markets have cratered, businesses have shuttered and hundreds of millions of people have become insecure about their future.
Though this does not mean that investment opportunities are not out there. In this unprecedented era of coronavirus, look for the following investment trends to emerge:
Investing in Industries That Stand To Benefit from the Crisis
While the coronavirus crisis has led to steep drops in the stock prices of most companies, some industries will actually benefit from the crisis. Chief among these industries are technology companies that facilitate both working from home and spending a lot of time there.
Companies that offer virtual public network (VPN) services and web conferencing systems will likely benefit greatly from the crisis as well as those that provide 5G wireless technology and cybersecurity systems tailored to remote access. Companies that offer useful remote services will benefit as well, such as those that provide document signing systems and online physician appointments.
Also, many large retailers, such as Amazon, Walmart and Domino’s Pizza, are doing so well in this economy that they are actually trying to hire tens of thousands of people in a short period of time. Companies that offer in-home entertainment will stand to do well, too. This includes those that offer video streaming services, such as Netflix, and those who provide online video games and services related to them.
Diversifying Portfolios with Fixed-Income Securities
Smart investors often use fixed-income instruments such as government bonds to diversify their investment portfolios and protect themselves against unexpected drops in the stock market. Those who have done this to a sufficient extent have seen the decreases in their stock holdings at least partially offset by corresponding increases in their bond holdings. This is because the U.S. Federal Reserve, in reaction to the panic in the markets, lowered interest rates, which led to both decreased yields in bonds and sharp increases in their prices.
While the S&P 500, at the time of this writing, has lost more than 30% of its value since the beginning of the year, the PIMCO 25+ Year Zero Coupon Treasury Index ETF has risen by more than 25% this year. Other bond funds have risen as well, especially those that hold bonds with long maturities, as rate drops more dramatically affect these types of bonds.
It should be noted, though, that when the crisis ends and the fed raises rates, bond prices will fall. So, prudent investors do not overinvest in them, even during times of economic upheaval such as these.
Diversifying Portfolios with Alternatives
As with fixed-income instruments, smart investors often diversify their portfolios with something called alternative investments. These include:
private equity and venture capital
What makes these types of investments so valuable to a balanced portfolio is that the value of them generally does not directly correlate to the stock market. What’s more, they often function not just as a hedge but as a vehicle toward long-term gains.
Like with fixed-income instruments, though, smart investors use alternative investments as a component of a balanced portfolio and not as a replacement for it. This is especially good advice during this particular crisis, in which traditional alternative hedges such as gold have not consistently risen in price because of the desire of many to stockpile cash.
Despite the dramatic collapse of the stock market and all the economic turmoil caused by coronavirus, there are still good investment opportunities available for those bold enough to go after them, and smart investors will likely do just that.