Investors should be wary of stocks that are purely cyclical and, instead focus on companies that can manage even in a severe recession, e.g., those with secular (or structural) drivers that will play out regardless of a downturn in economic performance. One such trend is the consumer shift to e-commerce. The move to online has certainly accelerated in the last 10 years, but I believe it still has a long way to go and will underpin market leaders like Amazon, which also benefits from having a visionary founder and CEO in Jeff Bezos.
Another trend we are watching is the transition from on-premise software to the cloud. We are still relatively early in the process. But as more enterprises move their workflows to cloud-based platforms, companies like Microsoft and Amazon's AWS business, which have invested heavily in infrastructure and software services, should continue to achieve above-market growth and should see higher margins with better cash flows.
Ramiz Chelat is a portfolio manager at Vontobel Asset Management’s Quality Growth Boutique.