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Most of the United States remains on social restrictions while awaiting possible medical solutions to COVID-19, which has infected over two million people to date globally. The ability to determine immunity to the virus, as well as viable treatment options and ultimately, a vaccine, are needed before social restrictions can end. These are critical first steps to give visibility to the duration of this crisis and its potential impact on economic activity and ultimately, to allow investor confidence to return. There are over 260 programs currently in testing. It is important to note that production is ramping up on many of these options without full-scale clinical trials having been completed. It is difficult to determine what has real potential and what is more noise, and given the fluidity of the situation, that is likely to be the case in the near term. Nonetheless, it is important for investors to understand and keep top of mind.
Testing
In the near term, testing is critical to determine which parts of the population can safely return to work and which sections need to continue to physically isolate. There are currently two options for testing:
Accurate testing is also critically important to fully understand the segment of impacted people. This will give us better insight into how the virus spreads and a better understanding of the true fatality rate. To date, the virus is seen as having a higher fatality rate than those of similar diseases. How that holds as we get a better sense of how many people have been impacted will help give insight into what levels of containment may be necessary.
Therapeutics
With no cure currently available, there are several therapeutic options being used and explored:
Vaccines
Vaccines are both the most hoped-for solution and also the riskiest. The typical paradigm for vaccine development involves multiple years of development and trials. With COVID-19, development is happening in overlapping phases to shorten timeframes, and large-scale manufacturing would be concurrent with clinical development. There are multiple early-stage trials in process, both in the US and in China. Any vaccine would need to be both effective and safe to proceed. Both novel and traditional vaccines are being investigated:
The near-term way out
Without a cure or a vaccine currently available, diagnosis is critical when considering a return to normalcy. Discussions about individuals returning to work would need to include identifying those who have immunity and administering both the PCR test and the serological test. While both tests have issues with false negatives, it is hoped that using the tests together will provide a higher level of accuracy.
Some cities and companies are discussing ways to reduce social distancing once a peak in new cases has been reached and proper surveillance infrastructure (similar to what is used for the flu) has been put in place.
Investment opportunities
In this environment, how are we approaching investment analysis, and what are some interesting opportunities? There are many factors at play, including the impact the virus has had on the economy and the probable global recession. It is a key factor in our macro positioning, both for broad risk assets and for sector allocations in model portfolios, such as holding an overweight to health care. In our active equity strategies, we have held positions in several of the companies discussed above for some time based on their long-term fundamentals, including their overall development pipeline and portfolio of drugs, as well as their specific relevance to COVID-19 diagnosis and treatment. Looking past the immediate response, here are some of the themes we are monitoring:
At State Street Global Advisors, we are keeping an eye on long-term fundamentals and look for diversification, management quality, and balance sheet strength — in addition to sustainable return and growth. This health crisis will have winners and losers, even within health care, so it is important to understand those long-term fundamentals when committing capital. We are monitoring fiscal and monetary policies as we work through these challenging times, mindful of the continued uncertainty of the situation, but we are also looking at opportunities that the market dislocation has created.
The views expressed in this material are the views of Daniel Farley through the period ended April 20th, 2020 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Investing involves risk including the risk of loss of principal. Past performance is no guarantee of future results.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
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Investing involves risk including the risk of loss of principal.
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30/04/2021