Overlooked opportunities in mid-caps
I’m sure most people have heard of middle child syndrome – some have no doubt experienced it...
The internet is limitless, or so it seems. It occupies and influences nearly every part of our lives – even more so today in this pandemic period. While my workday has always included sitting at a desk with long stretches staring at a screen, this concept was foreign to my husband who’s never even worked in an office!
When teaching went digital in March he was in shock. He could barely make it through the 40-minute blocks of e-learning without pacing the room. And the reaction from his primary-aged pupils was even better. One showed up in a full suit and top hat for the first day, one threw her school uniform in the bin and another did a lesson in the bathroom because her baby sister was crying and it was “annoying”.
“Children must be taught how to think, not what to think.” — Margaret Mead, cultural anthropologist
Covid has influenced any number of trends this year and education has been one of them. Although e-learning has been around for years, it has primarily been for higher education degrees completed remotely, or resources like learning games, online books and supplementary materials for younger years. Lockdown changed a very basic relationship between teachers and their students.
While UK schools have reopened once again with added distancing, personal resources and extra cleaning, things are slightly different in the US. I can’t attest to every school, but I do have nieces and nephews at primary schools in the US. One school is to remain e-learning until 2021 and another has a 2-day rota system for kids going into school (they are required to wear a mask all day, apart from lunch – a big ask for a 9-year-old).
While younger children need that face to face learning where possible, higher education is more likely to see a lasting impact. As Anjli Shah, Investment Director at ASI put it, “the rising fees for conventional degrees are driving a shift to online education, distance learning and shorter, more vocational courses. The high cost of college education is pushing students to working part-time and therefore increasing the need for more efficient or time-saving methods.”
When we spoke to Bob Kaynor back in May for the Investing on the go podcast, the manager of Schroder US Mid Cap told us about how he thought the education sector was underprepared for a virtual environment and that it was an area he thought would have continued investment. He has since bought a position in 2U, a cloud-based software that allows non-profit colleges and universities to offer online degree programs.
Another US-based company addressing the market is Chegg, a holding in ASI Global Smaller Companies* and Baillie Gifford Global Discovery*. Chegg offers a range of services from textbook rentals to online tutoring. It also has an online library with over 43 million pieces of content. Chegg targets all ages, but has a greater focus on higher education.
Closer to home is Pearson, a holding in both Schroder Recovery* and Jupiter UK Special Situations*. Pearson was once the largest book publisher in the world, but today focuses solely on education. It even has its own private school called the Pearson Online Academy. 66%** of its total revenues are now digital or digital enabled.
The adoption of virtual classrooms has raised debate on the damage it’s done for low-income students who might have missed opportunities, or even an entire term, because of lack of access to technology. But digital education could also be a real positive, especially in emerging markets, where it could give more people access to education. For example, a recent note from the team behind GSAM India Equity Portfolio highlights how continued use of technology is fundamental to India’s new national education policy. The government is planning to create 200,000 digital villages to enable digital education. These villages will allow both e-learning and digital healthcare services in more remote areas.
There will always be a need for teachers and schools. But I do think some things will change going forward. For example, homework and assignments could stay digital, saving thousands of exercise books and billions of pieces of paper. Google Classroom, a free service for schools from Google, is commonly used to help streamline the process of file sharing. Google’s parent company Alphabet is a top ten holding in AXA Framlington Global Technology*, Fidelity Global Special Situations* and Lazard US Equity Concentrated*. Similarly, I also think remote parent/teacher meetings could continue, especially to accommodate working parents.
*Source: Fund factsheet, 30 September 2020