The pandemic has resulted in more questions than answers. There is a lot of chatter about a ‘new normal’ but the world is still figuring out what this looks like and when it will arrive.
For one Bahraini royal family office, the answer is sooner rather than later. ‘Governments all over the world are first and foremost taking care of their people,’ said Sidney Wheatley.
‘They are trying to flatten the curve, eradicate the virus, and allocating as many resources as possible to develop a vaccine.
‘Overall, I believe all the governments are quite sincere in this. We see that we will be through this quite soon,’ said the CIO of the family office of H.H. Sheikh Mohamed bin Salman bin Abdulla bin Hamad Al-Khalifa, the cousin of Bahraini King Hamad bin Isa Al Khalifa.
The office has its eye on a post-virus world, Wheatley told a recent virtual panel by the Ritossa Family Office.
First, it evaluates trends that were already moving forward but have been accelerated by the virus, such as working from home.
Although Wheatley does not expect companies to be completely decentralised in the future, he sees a hybrid model where employees spend part of every week at home.
Stocks like Zoom and Microsoft that are well-positioned in the space are already doing quite well, he noted.
On-demand entertainment and food and grocery delivery are other sectors to buy into, along with opportunities around localised manufacturing.
‘I think a lot of governments have realised how dependent we are for essential items, not just food but also medicine and building materials.
‘We sort of made the Far East the manufacturing hub of the world, and it’s quite apparent now that supply chains are very fragile. I do believe that there’s going to be a trend towards localised manufacturing,’ Wheatley said.
The office is also looking at sectors that are on pause because of the virus, such as tourism and air travel.
‘We are looking for undervalued companies where we could use our capital to prop them up for now. Hopefully (they) come out stronger than ever when demand picks back up,’ Wheatley said.
However, Wheatley thinks some emerging trends like homeschooling are overhyped. He said: ‘I don’t know how many of you are actually doing homeschooling at the moment, but believe me, I can’t wait to send my kids back to school.
‘There’s a social component, there are many components. I would say there is a bigger market opportunity for a home university or distance learning university.’
The office also approaches distressed assets with caution. It has come up with a new acronym ‘ebidac’ – earnings before income taxes, depreciation, amortisation and corona – to assess a company’s valuation.
Timing is important, because an asset remains distressed when one buys into it. It needs enough cash and cashflows until things pick up again, Wheatley said.
‘Sales in 2019 don’t really mean anything. The asset valuations on the balance sheet don’t really mean anything.
‘We need to really try and value the company as, what cash flows will they generate post-corona?’ he quipped.