Morningstar - Q4 2020 - 42

Spotlight: World After COVID-19

potential to reshape entire industries if they
become permanent.

acceleration of e-commerce and digital
entertainment trends. We dig into how we expect
these trends to play out after the pandemic.

Investors have placed their stakes. Although
broad stock market indexes have recovered from
March lows, there has been a significant
divergence among sector valuations, as shown in
the Morningstar US Market Index, split by sectors
( E X H I B I T 1 ). This divergence is a result of investors
believing that certain areas of the economy will
benefit from pandemic-related trends and that
others may be impaired by them.

Surveys reveal that the work-from-home
experiment has been mostly a positive experience
for both employees and employers.
According to a survey conducted by Upwork in
April, 56% of hiring managers reported that
the shift had "gone better than expected" and 32%
of employers reported an increase in productivity.
Only 9% of employers indicated that remote
working was "worse than expected," with 23%
reporting that productivity had decreased.

Based on our long-term outlook for the economy
and the trends within it, some industries
and stocks have become overheated, while others
have been unfairly overlooked.
To understand what society might be like after
COVID-19, we've identified three consumer
behavior trends that have the greatest ability
to reshape the postpandemic economy: shifting
workplace patterns, social distancing and
its impact on the travel and dining sectors, and

Though employees' success with remote
working has varied depending on personal factors
like technology access, type of work, and
whether they had children at home, there have
been many positive experiences. Many
surveys have found that over half of respondents
would prefer to work from home either full
time or more regularly.

Working From Home: The New Office Space?
The impositions of lockdowns and shut-ins
forced many employers and workers to
quickly transition from their traditional office

In the long term, we think the maximum
percentage of employees who could reasonably
work from home is a little under 40% of the
workforce-positions that are concentrated in the
financial, business services, and technology
industries, whereas service workers, such as those
in transportation,
hospitality, manufacturing,
o Energy
and construction, will need to continue
€ Real Estate
to work on-site.
f Utilities
Once the pandemic subsides, we expect a
y Financial Services
vast number of employees to return to their offices
pterm.
Industrials
in the short
Much of the near-term
success ofr
remote
has relied on the
Basicworking
Materials
interpersonal relationships that employees had
US Market Index
already developed while in the office. As
Consumer
employeess
retire
or leaveDefensive
for new jobs and new
employeesd
join
their
firms,
Healthcare those interpersonal
relationships will need to be re-created.
i Communication Services
Often, these relationships are more effectively
developeda
in Technology
person than they are online.

EXHIBIT 1

Making Their Bets The returns of Morningstar US Market Index sectors since the
onset of the pandemic imply that investors expect widespread societal changes.
Sector
o Energy

-44

€ Real Estate

-20

y Financial Services

-18

f Utilities

-17

p Industrials

-9

US Market Index

0

i Communication Services

2

s Consumer Defensive

2

r Basic Materials

3

d Healthcare

4

a Technology

16

t Consumer Cyclical

19
-50%
Return

Source: Morningstar. Data from 02/20/2020 to 09/30/2020.

42

Morningstar Q4 2020

-40

structure to remote working arrangements. By
our estimates, at the peak of the pandemic
lockdowns, 45% of employed U.S. workers were
working from home.

-30

-20

-10

0

10

20

t Consumer Cyclical
At the digital Morningstar Investment Conference
in September, Larry Fink, the chairman
and CEO of BlackRock BLK, which employs 16,000
Morningstar - Q4 2020

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