By Kerstin Engler, Senior Wealth Manager, Geneva Management Group.
Sustainability is a trend on the rise in every sector of the business world. From consumers to corporates, there has been a global shift bringing environmental and social consciousness to the fore.
The investment world is no exception. In recent years, there has been a rise in investors looking to the future ‒ opting to choose their investments on the basis of social and environmental impact rather than exclusively financial gain.
This is not just about making money back on an investment, but about making a bigger impact on the planet and building communities by investing in businesses that implement measures to ensure ethical practice, sustainability and accountability.
Statistics indicate that investors continue to put their money into businesses with a strong focus on environmental, social, and governance investing (ESG), even at the start of the year as the Covid-19 pandemic was already unfolding.
According to investment research company Morningstar, investors around the world put a total of $45.6 billion into funds focused on ESG in the first quarter of 2020. This is not to say that this sector was immune to global investment outflows experienced in response to the outbreak of Covid-19.
After reaching an all-time high of $960 billion at the end of 2019, following three years of consistent growth, sustainable funds declined by 12% in the first quarter. Comparatively, investment funds overall declined by 18%.
But what does the future hold for this investment sector beyond Covid-19? The reality is that it is simply too soon to tell. We have no evidence so far that companies which apply ESG criteria will weather this storm better.
In fact, it’s too early to know what the overall impact on investing will look like long-term beyond Covid-19. Globally, we are still collectively figuring out the ‘new normal’ during this unprecedented crisis.
We have seen that investors are typically focusing on the short-term, dealing with their current investments and focusing on the survival of their companies or their bankable assets.
Our clients want to know how the pandemic will change the world from an investment perspective. We have discussions with clients about how the corporate landscape, and therefore investment opportunities, will be affected. There is a lot of consideration of the impact on sectors including biotech, robotics, gaming and the automotive industry. Consider, for example, that the latter will be affected by a significant reduction in the use of public transportation.
People aren’t asking about ESG. There hasn’t yet been time to look to the long-term. During this period of uncertainty, there have been ripples of talk around the world about how nature will ‘take back cities’ and conspiracy theories that ‘planet Earth is teaching us a lesson’.
Perhaps one good thing that will come out of this is that we will emerge with more consciousness and more purpose. The world will certainly be less global and more local after the crisis. Covid-19 has shown the limitations of globalisation, disruption in supply chains, and transportation, for example.
One of the potential advantages for companies that are already ESG classified is that they may already produce locally for environmental reasons, which could give an edge in this new world where we realise the fragility of global imports and the importance of supporting local business. Other companies may still need to adapt their supply chain.
We have already seen businesses launching new initiatives to help those in need during this time. Beyond Covid-19, it stands to reason that there will be heightened social awareness. More than ever, people are thinking about social factors and uplifting communities. Sustainability could well be in focus as the world collectively heals and looks to the long-term for the planet and its people.
ONLINE STOCK BROKERS ARE BENEFITING IN 2020
2020 has changed our lives in dramatic ways. Thanks to COVID-19, many of us now work from home. Rather than go to the doctor’s office, some have embraced telehealth apps. And instead of seeing brokers in the flesh, many have opted to sign up for online brokerages.
Before COVID forced us into quarantine, we were hesitant to do their investing online. But, with in-person meetings no longer possible, we’ve finally seen how convenient it is. This trend has been a boon for online stock brokerages. Questtrade added 50,000 new accounts in Q1 2020. Robinhood, a popular American trading app, saw three million new members join in the first four months of 2020.
Is online trading here to stay? Is it in the best interest of investors to engage with these services without first consulting a professional? We’ll examine these issues in today’s article.
Business Has Been Booming For Online Brokerages
As lockdowns forced millions of Americans into their homes, boredom quickly set in. Sports leagues around the world had suspended play, so that was out. While some theatre chains streamed movies online, new releases were few and far between. And land-based casinos were locked up tight.
At first, we watched every show in our Netflix queue. We even stumbled across the spectacle that was “Tiger King.” And then, in April, a little gift landed in the bank account of hundreds of millions of Americans.
It was the federal Coronavirus benefit. Approved by Congress in March 2020, the IRS began to send checks worth as much as $1,200 to eligible Americans. As of June 2020, the government has sent more than 159 million checks.
For some, this massive injection of capital went straight to rent, bills, and other necessities. But, for those lucky enough to have a stable income, this windfall became seed money for the stock market. At first glance, putting capital into the S&P or the Dow Jones during the COVID crash seemed suicidal.
But, as losses slowed, the media played up the massive correction as the best buying opportunity since the Great Recession. Treasury Secretary Steve Mnuchin concurred, saying the Coronavirus selloff would be short-lived.
And so, millions of Americans, many of whom had nothing but time, plunged their $1,200 extra dollars into the stock market. With in-person brokerages shuttered, people flocked en masse to services like Questtrade and Robinhood.
Robinhood: A Major Factor In The COVID Crash Recovery?
As we already mentioned, more than three million new investors have signed up with Robinhood since the pandemic started. This app, which got its start back in 2013, has long had a cult following among Millennials for making investing cheaper and more straightforward.
Then, the COVID crisis introduced millions more to this stock trading app. At first, Robinhood creaked and groaned under the strain. In early March, when COVID-related market swings began, the app crashed several times.
As the company adjusted to the new loads, though, their user base surged. By the end of March, they had ten million users. Then, as stocks sat 40% off their all-time highs, these new app users began scooping up the “bargains.”
To be sure, some stocks got oversold during panic selling in March. However, given the new realities of our COVID-infected world, these novice investors made some “curious” picks. Consider the case of Delta Air Lines (DAL). Of all industries affected by COVID, the virus has hammered travel the worst.
Now, few Robinhood users held DAL before March 2020. Yet, after Delta’s stock lost more than half its value, Robinhooders bought up hundreds of thousands of shares. DAL has since rallied 50% to around $30/share since hitting its 52-week low. Even though, for the foreseeable future, international travel won’t be a thing.
We see a similar trend emerging with publicly-traded travel/travel-adjacent companies like Boeing, Hertz, and MGM. Despite the bleak future these companies face, Robinhood investors are piling in. Perhaps they think things will go back to normal soon, pushing prices 2-3x higher, thereby making them piles of cash.
But, if any of these companies go bankrupt, they’ll be in for a rude awakening.
Will Interest In Online Trading Endure Post-COVID?
Currently, new Robinhooders and other novice investors have heavily chummed the market’s waters. In a way, they are like children who have yet to learn that stove elements are hot. In other words, they’ll have to get burned badly to learn their lesson.
In particular, most don’t realize that bankruptcy proceedings seldom favor retail investors. On the other side, these shareholders get next-to-nothing – if anything at all. As of June 2020, this reckoning hasn’t happened yet. Stocks are currently trading around 10% below their post-COVID high, but well above 52-week lows.
When the next big plunge does happen, though, loads of over-leveraged Robinhooders/newbies will get flushed. If anything, we’re deeply concerned – according to a recent Yahoo Finance report, 20-year-old Alexander Kearns got cleaned out on a bad trade he made earlier this month.
His account briefly showed him $700,000 in the red, which later reset to zero. It appears he thought he owed that amount, so he committed suicide shortly thereafter.
While not everyone will react as severely to busting their account, the coming crash will greatly reduce investment post-COVID. The current class of inexperienced investors do little (if any) research. They treat markets like a poker game. As any experienced card player knows, the money always flows to the sharks in the long run.
In our view, a small percentage of these new investors will stick around. They are the ones doing extensive research, making smart bets, and learning from their mistakes. The rest will slink away after torching thousands of dollars in life savings.
Prepare For Stormy Seas
If you are new to equities investing, batten down the hatches. The current market frenzy won’t last forever, as it is pumping cash into stocks with poor long-term prospects. When it all comes crashing down, many of the neophyte investors posting on /r/wallstreetbets will mysteriously vanish.
Don’t be a statistic. Do your homework, stay within your bankroll, and keep learning. Invest wisely – 2020 still has plenty of tricks up its sleeve!
TOP TECHNOLOGY TRENDS FINANCIAL INSTITUTIONS SHOULD INVEST IN TO BRIDGE THE GAP IN REMOTE WORK
Chirag Shah, Senior Vice President, Fintech & Innovation Lead, Publicis Sapient
More than ever before, technology is critical to the success of financial institutions. Over recent years, we’ve started to see fintech and incumbent tech compete, as there has been increased demand from consumers. With everyone having to operate remotely due to COVID-19, the customer needs, and therefore, the companies’ urgency to act quickly, have been accelerated.
Banks and financial institutions must show their ability to develop new customer friendly innovations that can help connect data and high-end digital delivery. Here are some innovative technology trends that will help navigate the disruption.
Since the onset of the pandemic, cyberattacks have rapidly increased. People are extensively utilizing online platforms for their professional and personal needs. Often times they are using their personal devices, rapidly shifting transaction patterns and with limited control on access privileges it has put an enormous stress on security controls.
Given the distributed nature of work is something we will continue to face in the near term, organizations will need to focus on security measures across infrastructure, product and people. There are several recommendations to get in front of cyber-attacks:
- Building robust resilient products
- Instituting stronger access privileges across application, data and network stacks
- Patching hardware and software with the latest security updates
- Building cloud native products which have inherent tighter security controls
Since March, we have been forced to accelerate the pace for innovation around technology themes such as application modernization and rationalization. Companies have to transform digitally so they can scale up digital products and services and they need to migrate legacy technologies onto modern platforms.
Critical financial service platforms such as brokerage trading, commercial lending, customer analytics and call-center operations are being modernized with latest technologies that are virtual, scalable and federated. The impact around how these components react and work with each other in the scenarios of highly volatile environments is unknown. Recent troubles have shined a light on the vulnerability of critical platforms and the necessity for new tools and processes that ensure they will stay competitive. Ensuring modern distributed applications work, with mainframe like reliability and cloud like scalability, is Resiliency.
Low Code No Code Platforms
Digitization driven by recent events will need enough acceleration to support customer’s behavioral transformation. Low Code No Code platforms will thus emerge as a winner as it enables a rapid turnaround in designing and building applications with minimal hand coding and delivering value in an agile and reliable manner.
According to Gartner, “by 2024, three-quarters of large enterprises will be using at least four low-code development tools for both IT application development and citizen development initiatives. By 2024, low-code application development will be responsible for more than 65% of application development activity.”
Data’s new defined purpose
Democratization of data will be a key initiative within every financial service client particularly if they want to restructure their products and make them digitally available to customer; increased customer activities across digital channels has created massive datasets.
Gathering critical information sets relevant to the business and customers will democratize data. Three strategies which will help financial service organizations be more data-driven:
- Proliferations across these massive data sets produced by customers and other channels will define new rules and expectations to create a customer 360 view.
- Adopting and implementing the new Data privacy, Data governance and Data practices.
- Data driven decision making through visual analytics and data story telling.
We are now starting to see that alternate data sources are being leveraged, in the Investment Research processes, in order to track retail sales.
Banks are starting to invest more in leveraging AI models to help prevent credit loss. Post COVID-19, banks are unable to identify who is creditworthy. Credit reports are unable to accurately reflect where borrowers have deferred making payments to lenders across multiple months. AI can be leveraged to better service banks to identify potentially delinquent clientele. Based on customer profile, banks will have to react appropriately:
- New customer acquisition – Suppress marketing to increased risk customers, as pre-approved customers may have lost their buying power, which isn’t reflected in the credit reports
- Pre-delinquent customers – Early warning and early intervention to identify struggling customers
- Post-delinquent customers – Identify and suggest hardship programs to help reduce risk for customers that might have lost their jobs or being furloughed
Remote working has proved challenging for front office workers and their typical access to information flow. Chatbot usage is rapidly increasing as they use natural language processing to connect into multiple underlying systems in order to provide a one stop shop for all information to the investment professional (IP) leveraging collaboration tools like Symphony. This allows data sharing with other IPs and access to data from multiple systems at their fingertips.
Additionally, call centers are utilizing AI/chatbots to help augment the inbound calls to see if a virtual assistant is able to answer straight forward customer queries.
Banks and financial institutions no longer have the luxury of staying complacent with the legacy tech, or waiting to see what trends prove to be most effective before investing. Financial institutions need to be taking action, embracing the changes they have faced already, and the ones they have yet to encounter and they should be bullish in investing in technology that will help them disrupt competitor business models, in order to help them stay afloat during these unprecedented times.
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