COVID-19: The Generational Mash-Up

The COVID-19 pandemic is a thematic accelerant. As our research team highlighted recently, the economy’s shift to life at home during quarantine sped up the pace of many long-term structural changes driven by technology. A byproduct of this shift is increased adoption of disruptive technologies across generations, driven by two factors: connection and convenience. From the oldest to the youngest demographics, tech as a necessity is an attitude that we expect will continue to boost key investment themes over the long term.

New Generations Embracing Disruptive Tech

Take my 81-years-young mother. She is part of the Silent Generation, the nearly 50 million Americans born between 1928 and 1945.1 Technology during the stay-at-home era has become essential for her because she wants to interact with her children and grandchildren, including my 9-year-old son. The FaceTime sessions between those two are marathon-like, to my mother’s credit (though Zoom still eludes her). But for my son, FaceTime and Zoom have become verbs in his vernacular.

He and his iGen cohorts, those born between 1997 and 2012, socialize well beyond basic videoconferencing. It’s old hat for him now to meet up with his buddies in a video game or on some kind of digital platform. This US population of roughly 74 million knows nothing but technology. Still, while used a bit differently, my mom and son use technology to achieve the same outcome: socialization.

How different generations continue to catch on technology-wise bears watching as tech penetrates more aspects of our everyday. We all want to participate and be part of something, as we are social animals, disruptive tech makes that easier, if not today for some, then tomorrow. While 9-year-olds may not be adept at setting up digital payments through Venmo, that’s only a matter of time. Right now, they’re certainly capable of clicking a few buttons to buy merch from Marshmello or V-bucks on Fortnite. And while 81-year-olds might not be hanging out with friends on Twitch, it’s increasingly likely that it’s not because they can’t.

New generations embracing technology out of necessity is a COVID-induced outcome with lasting investment implications. We expect engagement across generations to increase, whether for gifts and groceries, financial services and food delivery, or telemedicine and travel, among other essentials.

Where Generations Typically Land On the Adoption Curve

According to the diffusion of innovation theory, the adoption of new technology typically follows an S-shaped curve. Adoption generally starts out slowly but gains momentum as it filters into mainstream routines.

When thinking about this on a generational level, different generations tend to adopt new technologies at different stages. Not surprisingly, younger generations are quicker to embrace new technologies, while older generations are slower to jump on board. The Silent Generation brings up the rear. But COVID is helping to reduce the time lag between age groups.

The Case for Including Thematics in a Portfolio

Within the context of a greater asset allocation, thematic investments provide concentrated exposure to disruptive underlying economic and technological trends. They separate themselves from more traditional investments because they:

  • Transcend classic sector and style designations.
  • Rely less on the business cycle.
  • Hold investor attention due to their narrative-driven nature.

Traditional portfolio construction mostly focuses on expressing market views via tilts within asset allocations. But there are other ways to express views, especially when a more nuanced opportunity presents itself.

In comparison, Thematic ETFs are increasingly diverse and span portions of multiple sectors, style boxes, and geographies. For example, a virus new to human understanding resulted in a groundswell of activity throughout biotechnology and genomics, and healthcare in general. But that groundswell also touches technology themes like cloud computing and cybersecurity themes and industrial themes like robotics and automation.

For managers, mooring a portion of a portfolio to an exciting systematic shift can help to increase portfolio diversification.  And it’s particularly helpful when evidence of accelerated adoption becomes visible in everyday life.

COVID-19 Quickens Adoption Curve for Everyone

COVID-19 leveled the world’s economy. However, technology-based thematics proved resilient as people adapted to new routines. Demand spiked for cloud computing and cybersecurity names, as well as names that facilitate social interaction. These themes recovered lost value much faster than the broader market, demonstrating the diversification potential of carefully selected thematic investments. New participants helped, including my mom’s Silent Generation and a bunch of school-aged kids like my son “studying” at home. Increased adoption across generations was always inevitable. It was all happening prior to COVID-19, but now, it is all is just happening sooner than expected.