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Tech stars of the second lockdown could be perfect for your portfolio

You may not have heard of Tobi Lütke, but that is set to change. The 40-year-old German-Canadian is the founder and boss of Shopify, the world’s second largest ecommerce business.

Like Amazon – the world’s largest ecommerce business, valued at $1.58 trillion – Shopify, worth a more modest $112billion, is set to be one of the main beneficiaries of this year’s Black Friday next week.

This is the Friday after Thanksgiving in the US, so called because it is the date on which stores go into profit, and now associated with huge sales.

Ecommerce business Shopify, which is worth $112billion, is set to be one of the main beneficiaries of this year’s Black Friday next week

This year’s Christmas gift-buying bonanza is likely to happen largely online, propelling Shopify, provider of online shop fronts to 1m-plus businesses, to the top of the list of stars of the second lockdown.

These are the names vying for a place in your portfolio, as they are prospering from the trends that turned Amazon and other tech titans into the first lockdown’s poster boys.

Amazon’s Jeff Bezos may always be richer than Lütke. But the fame of the latter, a video games fanatic and ‘personal growth junkie’, is rising, in line with the 96 per cent leap in Shopify’s third-quarter revenue.

Betting on the return to the life we knew before is a reasonable response to the vaccine news.

But backing the belief that lockdown habits may have taken root also makes sense, as Bank of England chief economist Andy Haldane emphasised this week in a speech citing Shopify.

‘The crisis has already flicked a digital switch,’ Haldane said, ‘accelerating pre-existing shifts in how companies and individuals work, save and spend.’

Opinions will differ on whether the changes to worklife will stick.

Lütke, for one, believes the office could be outdated. But wherever Shopify’s staff are working, they are supplying software as a service (SAAS) to the increasing number of businesses that will not wish to do their own web development.

The clientele includes Tesla, Mattel, Penguin Books, Victoria Beckham and the make-up company set up by Kylie Jenner of the Kardashian clan. The video app Tik Tok – which wants more merchants – may be the next partner.

A year ago shares in Shopify – the brand comes from ‘shop’ and ‘simplify’ – were $322. By this September, they had climbed to $1,134, following the same trajectory of Etsy, the craft and vintage ecommerce platform.

Today Shopify’s shares are almost $990. Bargain lovers may not be excited, although the company’s potential to expand – its share of US ecommerce is still only 6 per cent – is vast.

The other stars of the second lockdown should also be able to make the most from the global switchover to digital. 

As many as 26 per cent of all purchases in the UK will have been made online this year, according consultancy CBRE. 

Although the consultancy thinks this may fall back to 23 per cent in 2021, there will have been five years of growth in about 12 months.

This suggests that the property companies and REITs (real estate investment trusts) that invest in the ‘big box’ sheds and smaller urban distribution centres used by online retailers also belong in your portfolio.

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Property giants Land Securities and British Land hope to exploit this boom by converting retail properties into such warehouses.

But the sector’s success story is Segro, which this week snapped up yet another site in London to ensure speedy delivery to impatient consumers.

The Urban Logistic REIT is also taking advantage of the clamour for warehouses, some of which is coming from Hello Fresh and other meal-kit businesses whose subscribers have become lockdown master chefs. Many may stay loyal post-pandemic.

Whatever your view on working from home, the forecast that offices could be under-occupied is good news for private equity trusts with holdings in specific unlisted SAAS companies. 

The Pantheon International trust has put money into Abacus Data Systems which enables remote working in the US legal and accountancy sectors.

This trust’s discount is 23 per cent, attractive if you want to pay less for a stake in a permanent upheaval in our way of life. But the vaccine breakthrough may have persuaded you that the future may not be entirely digital.

Jason Hollands, of Bestinvest, points out that the FTSE 100 is up 8 per cent since the start of the second lockdown, driven by a belief in broader economic revival.

Juliet Schooling Latter, of Fund Strategy, selects the ES R&M UK Recovery as a way to exploit this trend.

But while a balanced portfolio is the wisest approach in any era, the digital switch is firmly turned on – and the future will be shaped by people like Lütke.

By the way, he learnt about strategy from the video game StarCraft II: Wings of Liberty. A Black Friday gift idea?

Popular shares – AO World 

AO World has been one of the standout ‘lockdown winners’ – but the big question for investors is whether the bull run will continue.

The FTSE 250-listed online electricals retailer thrived during the spring when cooped-up Britons snapped up bread makers for their sourdough and video games consoles to pass the time.

As boss John Roberts put it, there was a new appreciation for ‘anything with a plug’.

The surge in sales carried on even when physical stores were allowed to reopen.

And AO World has reaped the benefits of households kitting out permanent home offices and redoing their kitchens after months spent at home. On Tuesday, it will publish its results for the six months to September 30.

Last month it predicted group revenues would rise 57 per cent compared to last year, to around £715million. 

The company did not reveal any profit estimates – but it is likely to have improved on a loss of £6million in the same period last year.

Shareholders and analysts are expecting good news from the last six months – but it is current trading they will be focusing on, and the present England-wide lockdown.

Any forecasts of what it will make this Christmas and a whiff of its full-year estimates would be welcome.

Shares have risen by more than 330 per cent this year.

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