Two fund managers who look after WAM Leaders Ltd (ASX: WLE) have revealed which sectors they're expecting to rise as the globe moves on from COVID-19.
WAM Leaders lead portfolio manager, Matthew Haupt, said gross domestic product would jump once a vaccine or treatment came along.
And there has to be businesses to provide that output.
"You've got to be positioned for anything linked to economic activity or recovery," he said in a Wilson Asset Management video.
"Balance sheets will be rewarded finally. They were punished before."
Haupt picked out the insurance industry as ready for a big recovery.
"That's very much out of favour at the moment. But that's a sector that will benefit from rising yields."
The sector was rocked last week when a court ruled that insurance companies could not refuse to pay out COVID-related business interruption claims. It remains to be seen how much this will cost the industry.
WAM Leaders portfolio manager, John Ayoub, specifically called out Insurance Australia Group Ltd (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE) as insurance providers to watch.
He also liked the look of companies that benefit from government spending.
"Stocks like Lendlease Group (ASX: LLC) and Downer EDI Limited (ASX: DOW) will continue to do well over the next 12 to 24 months."
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Mature companies took a broom to their operations
The coronavirus pandemic has given companies an excuse to restructure their business, according to Ayoub.
"What we're going to see when we come out the other side is more profitability in corporate Australia."
He took Qantas Airways Limited (ASX: QAN) as an example of a company that executed reforms that would not have been possible pre-COVID.
"They were able to redress their cost base… As you come out the other side, their domestic earnings will probably be greater than their peak earnings for the group in totality from 2018."
Dividend vs growth shares
Haupt predicted a roaring comeback by dividend shares.
"Dividend payers have been punished in this environment, which is quite bizarre. They will be the next beneficiaries as well."
He believes that much of the money that flowed this year from dividend shares into fast-growth shares would reverse flow post-COVID.
In fact, Haupt went as far as to forecast share prices of technology shares could crash as much as 40%.
This is because the prospect of ultra-low interest rates would dissipate once a vaccine or treatment is mass-distributed.
"That transition will be quite painful for a lot of people," said Haupt.
Investors who thought this year brought a permanent and fundamental shift in the way the world operates could get burnt, according to Ayoub.
"Although people have suggested structural change has happened rapidly, as we know from the past, things don't happen that quickly."
Earlier this month, IG Group Holdings plc (LON: IGG) surveyed 253 fund managers and economic experts on the sectors they thought would do the best during the recovery period.
Pharmaceuticals was the most popular pick, with 73% thinking it would increase in value over the next 12 months.
But the second most popular answer was a surprise, with technology chosen by 66% of the experts.
"Companies with interests in digital technology and remote working should prove to be strong performers over the next 5 years," stated the IG report.
"Also, digital companies with fewer physical assets, or ones that are able to embrace the new socially distant, tech-first culture will survive the crisis."
