Much has been written about the impact of Covid-19 on market behaviour and market psychology. The way investors perceive valuations is seen through the lens of Covid-19 because the virus has changed human behaviour and human behaviour impacts markets. For instance, tech stocks moved markedly higher last year regardless of valuation, because technology became the primary method of communication during lockdowns. Tech stocks buoyed market indices such as the Dow Jones Industrial Average, the S&P500 and the Nasdaq Composite and Nasdaq 100 Indices, driving them to all-time highs.
How have the stocks directly linked to Covid-19 performed and what are they? How can investors get the best exposure to Covid-19? In the investing world, the most sensitive industry to the effects of Covid-19 is the biotechnology industry — particularly the Covid-19 vaccine industry. To investors, the efforts to combat Covid-19 can be simplified into a value chain. This Covid-19 value chain can be segmented based on three categories of companies: Diagnostics, therapeutics and vaccine companies.
Vaccine companies are usually in the spotlight based on the efficacy of their therapeutics and vaccines. Companies that produce vaccines that work will likely see an exorbitant surge in value in a short period of time. Progress on the development of the vaccine — usually announced during key milestones such as Phase Three testing — will likely see a similar effect on the stock prices of these companies which are listed. Ideally, investors would want to invest in the “winning” vaccine companies, but putting all the eggs in one basket can be very risky because many of these vaccine-related companies have high volatility, which can result in significant losses. A strategic option would be to invest in an exchange traded fund (ETF) with exposure to vaccine-related stocks. Risk is diversified and returns are much likely to be higher on average.