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Never Let a Good Crisis Go to Waste: Themes & Sectors to Watch During and After COVID-19

I just read (and re-read) an article that suggests a third of Americans are now showing signs of clinical anxiety or depression according to Census Bureau data from May of 2020.

The post Never Let a Good Crisis Go to Waste: Themes & Sectors to Watch During and After COVID-19 appeared first on ClearLight Partners.

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“When written in Chinese, the word ‘crisis’ is composed of two characters.  One represents danger, and the other represents opportunity.” (John F. Kennedy)

Introduction

I just read (and re-read) an article that suggests a third of Americans are now showing signs of clinical anxiety or depression according to Census Bureau data from May of 2020.  In response to one question about depressed mood, the percentage reporting such symptoms showed a twofold increase from when a similar survey was taken in 2014.  That means we now have just over 109 million people pacing around their homes in suboptimal mental states – a sobering barometer of the psychological burden levied by the Coronavirus pandemic and other factors.

So, I’m going to propose a new rule.  From here on out, let’s only see the glass as half full.  Let’s look for the silver lining.  No more dour clickbait headlines.  Only good news.  Per Winston Churchill’s advice, let’s figure out how to not let this crisis go to waste.  With that in mind, I wanted to share some reflections on sectors and investment themes that I think will be well situated for recovery and growth both during and after COVID-19.

Investment Themes & Sectors to Watch During and After COVID-19

As a disclaimer, I would expect that most sectors will experience revivals, to greater and lesser degrees, coming out of the pandemic.  The investment themes and industries profiled below are those that I feel show particular promise and could produce opportunity for investors ready to deploy capital with conviction.  Also, COVID has acted as an accelerant to many themes that have been underway for a while now, and several of the topics I mention below are simply calling out trends that have picked up and/or attracted more attention in the recent months.

Additionally, it’s been proposed that habits are formed or dropped over the course of about a month, and we’ve been quarantined for going on five months now.  So, the key here is first recognizing that behaviors have changed. Then, the idea is to focus on the areas where people aren’t going to just go back to the old ways of doing things once we can all take our masks off.  So, without further ado…

 

Investment Themes:

Explanation
1. At-Home Convenience Services Pre-COVID, I had not once had groceries delivered to my door. Because I had always driven to the supermarket and walked up and down the aisles like everyone else, it hadn’t occurred to me that there could be a better way. Well, there is. Order your groceries online and let someone deliver them to you. It’s amazing. I’m never going back. Look for ways to disrupt old life patterns that suggested that you had to be physically present to transact when in reality you did not.
2. Recurring Revenue Yes, I realize that identifying recurring revenue as an attractive investment theme is tired and hackneyed at this point. But, boy are investors happy right now that have recurring revenue-driven businesses in their portfolio. Nothing like a once-in-a-lifetime, black swan pandemic to elevate the power of recurring monthly payments. Don’t take my word for it, talk to anyone, for instance, with a SaaS-focused investment strategy about how well they’re sleeping at night. SaaS isn’t the only way to participate in recurring revenue, though. What can be more interesting for investors is to identify de facto recurring revenue in sectors that have not yet thought about their business in that way.
3. Remote Monitoring Remote monitoring and other like processes that provide real-time data and analytics without requiring a human to be in the vicinity of what is being monitored are having their moment in the sun. Nothing like keeping tabs on something from the safety of whatever Coronavirus-free location you choose, and it’s an added bonus to eliminate the wasted time and monetary expense of air travel.
4. Small, Consummable Luxuries Times are hard right now, but a great way to boost morale is through small (i.e. inexpensive), consumable luxuries. For instance, we recently invested in an ice cream franchisor called Handel’s. For my money, nothing is going to pull me out of a funk faster than one of their extra thick strawberry milkshakes for around $6. It also gets the kids out of the house. As important, it gets me out of the house. Look for analogues to this in other areas where a relatively small monetary outlay produces an outsized happiness ROI on an ongoing basis.

Specific Industries:

Explanation
1. Outpatient Behavioral Health You saw the statistic I referenced earlier – we’ve got a third of our population dealing with anxiety or depression. This is a staggering number. The good news is that the behavioral health industry is here to listen to your problems one empathetic nod at a time. There are a lot of ways to do good / do well in behavioral health, but I’m personally attracted to outpatient behavioral therapy services. Feels like the stigma of seeking help for things like anxiety, depression, relationship issues, etc. is coming off. Further, the onset of an array of start-up teletherapy concepts could provide a sort of marketing halo effect that raises awareness of the broader behavioral therapy industry, benefitting all participants.
2. Express Car Washes It dawned on me recently that owning an express car wash is sort of like owning a toll road except you have to spray water at the cars as they drive by. It’s automated, high margin, and recurring revenue hiding in plain sight, and the only reason many investors turned their nose up at the sector, until recently, is because we all saw Breaking Bad1 and observed how Walter White and his wife used their car wash business2. The beauty of the express wash model during COVID is that you don’t have to get out of your car. In other words, getting your car washed requires no (or very limited) human interaction. Many express car washes also sell monthly memberships which is a great way to play the recurring revenue theme.
3. Fitness Perhaps part of the reason everyone is depressed is because they haven’t been able to exercise as much (or how they would prefer), and exercise has been proven in some cases to be as effective as taking antidepressants. Once the doors of our favorite fitness concepts fling back open and we are comfortable engaging in a regular exercise regimen, the industry is poised to resume its gangbusters performance. Having invested in both the Planet Fitness and Orangetheory systems as franchisees, we’ve voted with our dollars about our view of the industry, and we see no signs of long-term headwinds.
4. IT and Other Tech-Enabled Services IT Services is one of those great industries that, in many cases, has continued to post growth amidst COVID. MSPs and other IT services companies have quietly pulled this off because a lot of their revenue is recurring, and a lot of what they do can be done remotely which captures two of the investment themes above. Look also to other tech-enabled services companies where recurring revenue and remote capabilities are present. My money is on tech-enabled services being one of the most dominant sectors to emerge from the pandemic. Investors with prior expertise with such companies will be well situated to capitalize on this trend.

Conclusion

Hopefully this has provided some food for thought. The easy part is identifying the trends and areas on which to focus. The hard part is actually sourcing relevant investments and deploying capital.

If you are a business owner that stands to benefit from any of the topics mentioned above, please reach out early and often! We’re here to help, so give us a call to start a conversation.

_______

1Breaking Bad initially aired in 2008. If you didn’t catch it during its heyday, I would need to hear a pretty good excuse as to why. If, now that we’ve been quarantined for nearly five months, you still have not seen it, then the only response is to look at you disapprovingly with arms crossed and silently shake my head. Watch it.

2To be clear, I am not advocating the use of a car wash in a manner similar to Walter White and his wife.

About ClearLight Partners

ClearLight is a private equity firm headquartered in Southern California that invests in established, profitable middle-market companies in a range of industry sectors. Investment candidates are typically generating between $4-15 million of EBITDA (or, Operating Profit) and are operating in industries with strong growth prospects. Since inception, ClearLight has raised $900 million in capital across three funds from a single limited partner. The ClearLight team has extensive operating and financial experience and a history of successfully partnering with owners and management teams to drive growth and create value. For more information, visit www.clearlightpartners.com.

Disclaimer: The views and opinions expressed in this blog are solely my own and do not necessarily reflect any ClearLight opinion, position, or policy.

Source: https://www.clearlightpartners.com/never-let-a-good-crisis-go-to-waste-themes-sectors-to-watch-during-and-after-covid-19/?utm_source=rss&utm_medium=rss&utm_campaign=never-let-a-good-crisis-go-to-waste-themes-sectors-to-watch-during-and-after-covid-19

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Private Equity

Carlyle invests in logistics assets as Covid-19 drives e-commerce demand

Sale-and-leaseback transaction involves 27 distribution centres in France and Germany

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Carlyle has acquired a portfolio of logistics assets in France and Germany in a sale-and-leaseback transaction, as a response to a pandemic-driven rise in e-commerce demand.

The portfolio comprises 27 high-quality distribution logistics assets totalling 158,000 square meters of space focused on parcel-delivery. The assets are located near major urban and trade areas across France and Germany, the firm said in a statement.

Marc-Antoine Bouyer, managing director on the Carlyle Europe Realty advisory team, said both countries are “core” to the firm’s investment strategy in Europe. The acquisition reflects the interest in logistics and distribution, which has seen “rapidly growing delivery volumes accelerated by strong growth in e-commerce”, he said.

The investment was made via Carlyle Europe Realty (CER), a €540m pan-European real estate fund, closed in June last year. Financial details were not disclosed.

The CER vehicle targets opportunistic investments across Europe, focusing on “buy and build” platforms in key segments such as logistics, residential, student accommodation, retail, hospitality and co-working.

The private equity house with $221bn in assets under management around the world is not alone in trying to capitalise from the accelerated shift to e-commerce in Europe.

In April, KKR took a majority stake in European investor and manager of industrial and logistics assets Mirastar. In May, the US-based firm continued its move into European logistics real estate with the acquisition of Etche France from the BMF Group and its co-founders.

To contact the author of this story with feedback or news, email Elisângela Mendonça

Source: https://www.penews.com/articles/carlyle-invests-in-logistics-assets-as-covid-19-drives-e-commerce-demand-20201026

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Private Equity

Alternative Investments/ESG: ESG Investments Are Now Mainstream And Core Portfolio Elements

Adrian Lowcock is head of personal investing at Willis Owen. He notes that ESG’s decisive outperformance during the last one, three, and five years shows the investing approach is here to stay. Lowcock points to the 94.6% return from the MSCI ACWI ESG leaders index over five years compared to the 91.3% return from the MSCI ACWI index, as validation of his opinion.

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Alternative Investments/ESG: ESG Investments Are Now Mainstream And Core Portfolio Elements

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Gone are the days when ESG was just “nice to have,” says Adrian Lowcock at Willis Owen.

Adrian Lowcock is head of personal investing at Willis Owen. He notes that ESG’s decisive outperformance during the last one, three, and five years shows the investing approach is here to stay.

Lowcock points to the 94.6% return from the MSCI ACWI ESG leaders index over five years compared to the 91.3% return from the MSCI ACWI index, as validation of his opinion. (WealthAdviser)

ESG is core now

“These funds are core holdings now. Whereas previously, ESG was a secondary consideration, a nice to have tilt to portfolios, the world has been changing. A focus on companies that do less harm to the environment, be that alternative energy, greener food production or waste reduction, is here to stay. Crucially, investors are rewarding them,” he said.

Lowcock also points to the effect of the COVID-19 pandemic. It showed to locked-down citizens the effect of human activity on their environment.

“ESG investing is now a huge part of investing common sense, with many areas that responsible and ethical funds avoid being invested in “old” economy industries in decline,” he notes.

How the digital age is adding more power to ESG’s elbow

Lowcock also observes that advances in digital technology help companies more accurately track their environmental behavior and therefore, be more accountable for their actions.

Investors also benefit because technology helps make their opportunities more “cost-effective.”

Lowcock exhorts investors not to miss the ESG bus.

“Investors who are not on board {these trends} are going to miss out over the long term.”

Related Story:  How To See Through The “Ethical Veneer” (Bancroft Wealth)

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Source: https://dailyalts.com/alternative-investments-esg-esg-investments-are-now-mainstream-and-core-portfolio-elements/

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Private Equity

Digital Assets: JPMorgan Issues Bullish Bitcoin Analysis

JPMorgan (NYSE: JPM) analysts issued a note on Friday that said millennials’ preference for cryptocurrency over gold could lend a bullish tailwind to bitcoin in the coming years. Millennials would constitute an important segment of the investment fraternity and that could tip the scales in favor of BTC versus the yellow metal.

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Digital Assets: JPMorgan Issues Bullish Bitcoin Analysis

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Analysts at JPMorgan say bitcoin (BTC) will benefit at the expense of gold.

JPMorgan (NYSE: JPM) analysts issued a note on Friday that said millennials’ preference for cryptocurrency over gold could lend a bullish tailwind to bitcoin in the coming years. Millennials would constitute an important segment of the investment fraternity and that could tip the scales in favor of BTC versus the yellow metal. (MARKETS INSIDER)

Bitcoin playing catch-up with gold?

While the physical gold market commands a value of $2.6 trillion including ETFs, bitcoin is only a tiny fraction of that. (The market cap of BTC is just $243 billion, according to Bitcoin.com).

“The potential long-term upside for bitcoin is considerable as it competes more intensely with gold as an ‘alternative’ currency we believe, given that Millenials would become over time a more important component of investors’ universe,” JPMorgan wrote in their analysis.

“Even a modest crowding out of gold as an ‘alternative’ currency over the longer term would imply doubling or tripling of the bitcoin price,” the analysts said.

To reach the equivalent of the gold market, bitcoin would have to surge more than 10X from its current price levels.

Adoption too could work in favor of BTC

JPM also said that in the long run, there could be more new use cases for bitcoin – beyond its restricted role as a store of value similar to gold.

Rising crypto adoption could, therefore, add to BTC’s allure compared to the precious metal.

“The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value,” JPMorgan said.

Meanwhile, Raoul Pal says gold breaking down

Bitcoin has been on a roll in recent weeks, with Square’s $50 million investment and PayPal’s move to integrate the cryptocurrency into its platform.

Technically, the crypto gave a powerful buy signal when it cleared the $12,000 level on high volume.

Coin Telegraph quoted Real Vision CEO Raoul Pal’s tweet as follows:

“Gold is breaking down versus bitcoin, as expected cc: @michael_saylor Everyone take note. The next thing I’m expecting is the correlations between BTC and the dollar and BTC vs equities to break down too… let’s see. #Bitcoin.”

Related Story:  “Front-Running Opportunity Of A Lifetime” (Raoul Pal)

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Source: https://dailyalts.com/digital-assets-jpmorgan-issues-bullish-bitcoin-analysis/

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