The Acceleration of Digital Transformation

Grant Bowers and Matt Moberg talk tech in their 2021 sector outlook.

    Grant Bowers

    Grant Bowers Senior Vice President, Portfolio Manager, Franklin Equity Group®

    Matthew J. Moberg, CPA

    Matthew J. Moberg, CPA Senior Vice President, Portfolio Manager, Franklin Equity Group®

    “We look further into the future than elections, pandemics or economic volatility. We look for innovations that will shape society for years to come.”

    2020 will be remembered as a period of tremendous disruption and change. A worldwide pandemic and contentious US presidential election contributed to volatility that affected economic growth and global markets. As we look forward to 2021, we are positive about continued economic recovery, albeit from a low basis as markets face the ongoing uncertainty of COVID-19. We believe declining rates of infection and progress toward development and distribution of a vaccine will determine the pace of US economic recovery and, in turn, spur economic growth in 2021. We will also be monitoring potential policy changes very closely under the new presidential administration, as well as the possible changes to affected companies’ business models. Our role as active managers is to discern how these issues may present risks or opportunities in the market.

    Link:

    Link:

    Link:

    A Changing World

    The world is waking to the Fourth Industrial Revolution, a time of massive change led by innovation, which the impact of the COVID-19 virus has accelerated. Examples of rapid industry shifts include work from anywhere, remote sports and entertainment, greater reliance on restaurant takeout and delivery services, increasing industry consolidations, supply chains returning domestically, and retailers moving exclusively online.

    The accelerated adoption of technological solutions during the pandemic is just the beginning, in our view. As we emerge from the pandemic crisis, we believe the continued shift to digital solutions will be more important than ever and may continue to accelerate as latecomers catch up, while employees and consumers retain at least some (if not most) new behaviors that have become necessary in the age of global social distancing.

    Going forward, we see drivers of value creation across all industries, such as health care, fintech, consumer retail and manufacturing. Leaders on the forefront of these trends are proving they understand the state of their businesses and can meet their customers’ needs faster than ever, leading the way in highly dynamic business environments. In the shorter term, we will be listening to what companies have learned from their operations under the pandemic, and how they might apply that to their businesses over the longer term.

    Innovation Is Everywhere

    Markets will likely remain sensitive to advancements in COVID-19 treatment and the path to vaccine discovery. We will continue to monitor market risks while keeping our investment focus on quality companies that we believe display innovation and can potentially generate solid, risk-adjusted investment performance over a long-term horizon. Finding and understanding these opportunities requires a rigorous bottom-up investment approach that focuses on the sustainability of a company’s business model and growth potential over the longer term.

    We have the ability to identify and capitalize upon significant inflection points and the flexibility to invest in any sector, any market capitalization and any place—because innovation is everywhere. We use active management to navigate the complexities of investing in any new field or breakthrough as it emerges. We are constantly talking with thought leaders across industries; reading up on the latest developments; and meeting with companies, public and private, to understand the technologies and ideas that could have transformative potential.

    We remain focused on finding quality companies with strong competitive advantages, robust balance sheets and healthy free cash flows that can weather a severe economic downturn or increased market and economic volatility. Many of these high-quality companies should be able to emerge from a crisis even stronger, in our view. We encourage investors to think long term and consider volatility as an opportunity to take advantage of good prices on great companies that stand to benefit from significant secular growth trends.


    WHAT ARE THE RISKS?

    All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investments in fast-growing industries like the technology sector (which has historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing technological advancement. Small- and mid-capitalization companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies.