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Let’s do this

“But they do not make anything tangible” was the desperate feedback in a client meeting when we discussed the new economy business models last Friday. I tried to make the point that value creation in the 21st century is about know-how and intellectual property rather than bricks & mortar and a large financial capital base. The latter were the cutting edge in many industries over the past century.

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When I think of Apple and its success, it is more about the design of its ecosystem and its high-gear computer chips than about assembly lines. For a pharma company, it took apparently 48 hours and a computer to design the vaccine (see number of the week) rather than a campus with 10,000 scientists. It is so hard for investors to adapt to this, since they have to over-rule their basic instincts; the behavioural finance people call it the ‘familiarity bias’, i.e. you prefer what you can relate to.

Luckily enough, the brick & mortar stocks have shown some signs of life over the past few weeks. Less political risks and better economic prospects have reversed some of the staggering underperformance year-to-date. The good news is that there is further room left here, as the drivers may last well into next year. Thus, investors who have not been holding those assets throughout the crisis may look for ways to get exposure to this run.

How to gain exposure
A tactical way of doing so would be to go into the value style of equity investing and buy a large number of those stocks in a collective vehicle or look at some emerging market-related champions. Those who would like to combine the brick & mortar theme with longer-term growth prospects may look at businesses that are not easily disrupted by digital champions or clean utilities, which are making sizeable capital investments in future energy markets. From a currency perspective, we think the euro has had a tremendous run and may be in for a breather – as tangible as the European industry may be.

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