Listen, Watch and Read

October 21, 2020

Positioning for a Covid-19 Vaccine

With several potential vaccines for Covid-19 currently in Phase 3 clinical studies, every day brings us closer to potential approval and eventual broad administration.

Based on some of these vaccine developers’ comments, the timeline for Phase 3 results and potential approval by regulators may be a matter of weeks and first inoculations starting by the end of the year. In a September 14 interview, Pfizer’s CEO stated that he’s “quite comfortable” in the prospects of the vaccine candidate the company has developed with Germany’s BioNTech. While vaccine approval is the U.S. Food and Drug Administration’s responsibility, Pfizer has already started manufacturing the vaccine to build inventory ahead of the FDA’s review of Phase 3 results and potential approval. Other leading developers follow similar strategies with vaccine candidates in Phase 3 trials, including AstraZeneca/Oxford and Moderna.

While it may be well into 2021 before a majority of the population receives a vaccine, we think the forward-looking orientation of capital markets means implications of a vaccine approval have already started to be priced in. Industries that were hit particularly hard by Covid-19, such as Travel/Leisure, Real Estate, and Retail, may have the most to gain as travel restrictions get lifted, consumer confidence improves, and many workers gradually return to places of work. Other industries, such as banking, may see an improvement in their loan portfolios’ credit conditions, while commodity prices may benefit from increasing international trade.

Conversely, technology-enabled industries that profited from lockdown measures may see reduced momentum. We see these shifts as investment opportunities and have started to make portfolio adjustments to reflect an eventual vaccine approval.

Over the coming weeks, we expect to continue positioning for a Covid-19 vaccine, even as we navigate the other important event on the horizon: the November 3^rd U.S. election.

Many of the investment opportunities on our radar screen remain 20%-50% below pre-Covid levels as they have dually suffered from lower earnings and negative investor sentiment. We are cognizant that some industries impacted by the pandemic may not return to pre-Covid operations immediately, and some may never fully recover.

However, improving prospects of a vaccine have skewed the risk/reward relationship favoring this opportunity set compared with the sectors that have performed well since the pandemic was declared, namely Technology.

Our proactive investment process will remain focused on valuation, balance sheet health, and management experience to adapt to uncertainty levels remaining elevated. We look forward to sharing details of these anticipated portfolio adjustments in our next newsletter.

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