World Reimagined

World Reimagined: The Rise of Remote Work and Where Investors Can Find Opportunities

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The global health crisis over the past few years inadvertently kicked off a worldwide experiment in alternative work logistics. The experience altered the preferences and expectations of many employees and delivered unexpected potential benefits along with challenges for businesses. For investors, this evolution brings opportunities that are likely to expand even further if the economy stumbles.

What is the magnitude of the opportunity? 

According to WFH Research, roughly 5% of full paydays were remote pre-pandemic and rose to about 60% at the very peak of the pandemic. From the monthly polls conducted by WFH Research, the summer of 2022 is likely to see a drop to around 25% of total remote paydays, a fivefold increase over pre-pandemic levels with expectations that it will continue to rise in the coming years. Prior to the pandemic, the number of remote workdays doubled every 12 to 13 years, which means that roughly 50 years of growth were compressed into around two years.

This trend is likely here to stay. Here’s why: 

  1. The ability to work remotely is estimated to be equivalent to, from an employee’s perspective, a roughly 8% pay increase, according to Nicolas Bloom of WFH Research, and this leads to a material reduction in quit rates.
  2. Employers have seen productivity improvements that vary depending on which poll you look at, but overall, the impact of remote work has been positive.
  3. Remote work has been found to help companies develop a more diverse workforce as the flexibility opens opportunities for those with differing needs and preferences. Research has found that those who perceive themselves to be minorities in their workplace often have the highest preferences for remote work. Companies with more diverse workforces have been shown to outperform those with less diversity.
  4. Office space may become an area of cost savings, but that has yet to materialize yet. We expect that it will take time and experimentation for companies to determine the right layout and amount of workspace required. We expect that office spaces will evolve more towards meeting spaces with fewer individual offices and cubicles. This will present investment opportunities in the future.

Economic impact of WFH

As CEO of GitLab (GTLB) Sid Sijbrandij put it, “When no one is in the office, and we strip away all optics surrounding professionalism and hard work, all that’s left is the results.” Managers will need to focus more on results when the need for facetime no longer exists. Communication methods and expectations will need to evolve.

The shift away from commutes into large city centers will impact neighborhood economies. A study from the Becker Friedman Institute titled “Why working from home will stick,” found that the shift to remote will directly reduce spending in major city centers by at least 5-10% relative to pre-pandemic levels and will boost productivity by around 5% due to re-optimized working arrangements, but only 20% of this gain will show up in conventional productivity measures because they do not capture the time savings from reduced commutes.

Remote work has been fueling suburban home values, which have been rising faster than those in urban areas. Those who can work remotely are choosing affordability and more space over shorter commutes, according to data from Zillow (Z). Around half of the 23.8% growth in home prices since late 2019 can be attributed to the increase in remote work options, according to data from the National Bureau of Economic Research (NBER).

Investment Opportunities

Those moving out of large city centers will be looking for a place to live that suits their new lifestyle. A home builder that could benefit from this is Meritage Homes (MTH), which focuses on building energy-efficient, entry-level and first move-up homes in some of the Sunshine Belt area and southeast.

The workforce is likely to experience changes as well in the coming months and years as remote work opportunities attract those for whom traditional, city center, in-office work is undesirable or not feasible. The pandemic saw the single largest decline in the labor force in history. As of May 2022, the labor force is still smaller than the December 2019 high, something wholly unprecedented in the nation’s history; there are a lot of people on the sidelines. 

The most recent Michigan Consumer Sentiment Survey also found that the percentage of respondents anticipating a comfortable retirement is at a 9-year low. No wonder they feel that way given that we are experiencing the largest nominal drawdown for the combined bond and stock market on record. We have also seen the personal saving rate drop back to levels not seen since the immediate aftermath of the Great Financial Crisis. 

A recession would mean that more people will lose their jobs and more people would come off the sidelines and return to the workforce to bolster their savings. We could also see more people adding freelance work to their full-time positions. All together this creates a tailwind for companies that support both remote work, entrepreneurs and freelancers.

Fiverr International (FVRR) is a global marketplace that connects freelancers and businesses for digital services. Aside from being attractive to people coming off the sidelines as freelancers and those adding freelance work to their full-time positions, if we were to have a recession, companies would be more likely to look to freelancers rather than hiring new full-time employees, which would also be another tailwind for Fiverr. 

Another company geared toward the entrepreneur is (WIX), which provides website templates and tools to make it easy for users to create their own website. It also provides e-commerce tools. This offering would be attractive to those coming off the sidelines, those who are looking to augment their income, and those who choose entrepreneurship over looking for a new job.

As we mentioned earlier, remote work means that managerial techniques and inter-office communication will need to evolve. Atlassian Corporation PLC (TEAM) provides software that facilitates teamwork, from project planning and management to collaboration tools to IT help desk solutions. With flexibility increasingly vital for success, the Atlassian Marketplace offers more than 5,300 apps and integrations.

Remote work also means more complex infrastructure which is a tailwind for VMWare (VMW), which became a stand-alone entity in November 2021 after spinning off from Dell Technologies (DELL) and offers cloud infrastructure and business mobility solutions. Software development is an area that has seen a higher level of remote work adoption than other areas which is a tailwind for the software development platform company GitLab.

Zoom Communications (ZM) is a rather obvious candidate for the remote work economy, and while its share price has dropped from its October 2020 highs, the company is still growing at an impressive pace with revenue up 54% YoY in their second quarter for fiscal 2022. That’s astounding growth considering the base was during the height of the pandemic. On top of that, the company generates around 45% free cash flow margins and added $400 million in cash to its coffers last quarter – that’s what you like to see as we head into a potential recession. 

For those preferring funds over individual shares, Direxion launched the Work From Home ETF (WFH) in June 2020, and soon after, in September 2020, iShares launched the Virtual Work and Life Multisector ETF (IWFH).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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