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The race for a vaccine – what it means for investors

We look at the race for finding a COVID-19 vaccine, why investing in the race could be risky and what investors could do instead.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Matthew Taylor
Research Editor

Published on 6 August 2020

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

With fears about a second wave of coronavirus infections circulating, the race for a vaccine is on.

Several of the companies working on vaccines are publically listed, and that’s inevitably attracted attention from investors. The result has been some significant share price spikes, but how should investors treat these new stock market darlings?

This article is not personal advice. If you’re not sure if an investment is right for you, please speak to a financial adviser. All investments rise and fall in value, so you could get back less than you invest.

Race to the finish line

Researchers across the globe are in a manic race to find a vaccine. There are currently over 140 vaccines in early development and more than two dozen being tested on people in clinical trials.

Companies are spending millions, in some cases billions, and more and more companies are turning investor’s heads. With lots of competitors in the race, it can be tempting to try and predict a winner.

But the reality is that even expert virologists can’t predict who’s going to come out on top. Drug and vaccine development is difficult, time consuming and costly. A number of complex and unpredictable stages makes the costs and likelihood of failure high – especially when it’s being developed at break neck speed.

Even once they’ve been developed, vaccines require extensive testing to make sure they’re safe – particularly for a vaccine which could end up being given to billions of people in a relatively short space of time.

The race you’ll struggle to win

So many different variables makes picking and investing in a winning vaccine very risky – promising pharmaceutical candidates can, and do, trip at the final hurdle seriously denting a company’s share price. You might get lucky, buying and selling a share at the right time, but expecting to get lucky repeatedly is almost certainly a mistake.

Markets are notoriously difficult to time and no one really knows what’s going to go up or down in the next few days, weeks or even months. We think it’s best to take a longer term approach. That means avoiding the temptation to pick a speculative investment and then trying to jump in and out at the right time.

A vaccine doesn’t equal profit

There are several potential barriers to companies ultimately turning research into profits. Firstly there’s the costs of development – which are considerable. But perhaps more important is the risk that someone else gets there first, or that someone else’s vaccine is more effective. In that case all the millions spent on development could be for nothing.

AstraZeneca’s partnership with Oxford University makes it one of the leaders in the current race in finding a vaccine for COVID-19. But in their recent 400 million dose deal with Europe’s Inclusive Vaccines Alliance (IVA), they said they would be making no profit.

We suspect that other companies will also find it difficult to squeeze a profit from governments who’ve already spent trillions sighting the virus.

So what do I do?

If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.

WARREN BUFFETT

If you’re buying shares in a company simply on the basis that they might solve the coronavirus vaccine problem you’re taking a very black and white view. Either the company will find success or it won’t. If it does come up with the winning vaccine, great – but what if it doesn’t? Would you be happy holding shares in the business for the next ten years (especially given the share price would probably fall sharply)? Do you know how the company was performing before the coronavirus outbreak? Remember past performance is not a guide to the future.

At times like this it’s easy to get sucked into the thrill of making a quick buck, but this is where the basics of investing matter most. That means investing across a range of different companies and for the long term.

While you might have heard it before – we really mean it.

Find out how to build a diverse portfolio

Not having all your eggs in one basket is the backbone to good investing. Diversifying by spreading your money across a wide range of investments helps reduce the significance of one-off events – like a failed vaccine trial for instance.

While it might not be as exciting, we think this is the right decision for most people in the long run.

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