Tech stocks surged during the pandemic as businesses were forced to move from fully serviced office suites to dining tables and home offices.
Zoom, Microsoft Teams, Google Meet all had breakout moments in the past 18 months, and the companies behind them have certainly benefited.
But as we settle into a life of what has been described as ‘hybrid working’, will technology companies continue to benefit?
According to Fairview Investing founder and consultant Ben Yearsley, the tech boom is far from over. “We’ve definitely had a Covid effect on behaviour over the past 18 months, which has accelerated the trends, but the trends were already in place. In an environment where inflation may be an issue and growth slowing, after this year anyway, tech will increasingly be used to drive efficiencies.”
See also: UK funds industry slowly dials up exposure to the Zoom explosion
New working environment
According to Ben Rogoff, Polar Capital’s technology director, just 5% of the UK’s workforce worked from home on the eve of the nation’s first lockdown, with 13% frequenting coffee shops daily to carry out their work-related tasks.
While not an everyday occurrence for the majority, 80% of people have worked from a coffee shop at least once and one in three have attended a job interview in one.
The remote working trend was already in progress before the pandemic took hold, but Covid-19 may well have put the final nail in the coffin for the five-day office era.
A report carried out by McKinsey & Company found that 80% of people had enjoyed working from home during the pandemic, while 69% considered themselves to have been at least as productive as previously, enjoying the flexible hours and the time and money saved from not having to commute.
“Whatever their reasons, only 12% want to return to full-time office work while more than 72% want a hybrid remote-office model going forward. Half of workers say they will leave their jobs if they are not offered flexible work,” says Rogoff.
Easy money or money pit?
AJ Bell head of investment research Ryan Hughes says that as the economy picks up and we regain an element of normality, businesses will begin exploring what the working environment will look like. This inevitably leads investors to question what this will mean for the tech winners of the past year.
“The obvious statement is that the easy money has been made. It is clear that the trend is well underway and that the day-to-day way that business is conducted has changed forever. As a result, the long-term investment case for many of the technology winners remains attractive but we are probably moving into a phase where valuations become much more important rather than piling in at any cost, which was seemingly happening 12 months ago,” he explains.
“However, as technology evolves, it opens up new opportunities and just as few had heard of Zoom three years ago, we will no doubt see the next phase of technology innovation comes out of the learnings of the pandemic.”
Switch to hybrid working will pave the way for innovative tech
For Polar Capital’s Rogoff, the switch to a hybrid working model will require a significant step up by many businesses, paving the way for innovative technology.
“Hybrid work will require widespread adoption of cloud storage, unified communications, videoconferencing and contact centre software, workflow automation, collaboration and scheduling tools, digital forms and agreements, e-signatures, online procurement, invoicing and payments, security for distributed work and modern HR for policy enablement and monitoring, especially employee wellbeing,” he says.
“Our interactions are likely to become increasingly digital too, obviating the need for paperwork and subsequent data entry; if that is the case, our datasets will explode in size and accuracy.”
Rogoff says that sectors such as finance, management and IT will be the greatest beneficiaries of the hybrid working model.
How to invest?
Since the pandemic took hold and the first lockdown was put in place in the UK to date, the FTSE World Technology index has returned 93.6%, while the MSCI World Information Technology index returned 88.6%. By comparison, over the same period the FTSE All Share delivered just 52.29%.
Both Hughes and Yearsley suggest the Polar Capital Technology Trust to access the opportunities within the technology sector.
“They are very experienced and well-resourced with strong relationships with company management and therefore the Polar Cap Technology Trust is appealing. The fact that it is trading on a 7% discount shows that investors are a little more circumspect about technology prospects than they were last year,” says Hughes.
However, for those that wish to take a broader view, or something a little different, Yearsley suggests the Herald Investment trust which focuses on UK and small caps, while Hughes points to the Sanlam Artificial Intelligence fund, given its exposure to companies that are benefitting from the changing use of technology.
“In both cases [Polar Capital and Sanlam], it is sensible to expect some volatility given the premium valuation that still exists in the sector but on a long term, there is still a long way to go in the changes in the way business is conducted before it is cemented as the ‘new normal’,” Hughes says.
See also: Polar Capital tech and healthcare funds propel AUM to £20.9bn
