Despite working in the financial services since 1990, I’ve never looked back on a year like 2020. It was a year that presented unique challenges to families, companies, governments, markets and investors around the world.
Consequently, the unprecedented events we’ve all lived through this year are likely to shape markets, and our daily lives, not just in 2021, but for many years to come.
LIVING IN HISTORIC TIMES….
Although it seems like a lifetime ago, 2020 started innocuously enough. Markets continued to make ground into the year as anxieties over the trade war raging between the US and China (remember that?) finally eased with the signing of a “phase one” trade deal between the warring parties in mid-January.
Barely a month later, markets were confronted with a “black swan” event. To quote the former US secretary of defence, Donald Rumsfeld, the onset of the first global pandemic in more than a century was a genuine “unknown, unknown”.
By late February, markets were in apoplexy as they attempted to grasp the seriousness of unprecedented global lockdowns, the instant recessions they triggered world wide and the suspension of dividends by major listed companies.
TUNING OUT THE NOISE….
Record levels of central bank support and government stimulus succeeded in righting the ship, although markets took a full 5 months to recover from their March troughs. They were boosted once more in November with the news of competing vaccines that could potentially end the threat of lockdown and then the US Election result too.
From my perspective, such sweeping changes to our very social fabric only underline the need to tune out the short-term “noise” and to focus on the long-term investment case. For private investors, 2020, was the year that proved the need to be well diversified and to act in accordance with the outlook. Some of the largest investor casualties of the year will be those that sold out during the month of unbridled market panic only to miss the subsequent recovery and opportunities that presented themselves.
2020 provided me with the biggest success we have ever found in an investment. The exposure made to VIXY:US created gains of 80% plus for investors in just over 3 weeks, with the best return creating an astonishing 194% over the similar time frame (this evidences the difficulty to time the markets and speed of the investment provider). There have been other successes since the bottom back on 23rd March 2020. Technology ETFs have been leaders and we have had success in several of these. Oil has been volatile but the exposure to BRNT has been very successful and we would expect this to reap further gains as the oil price rises with demand in 2021.
LOCKDOWN WIDENS THE DIVIDE
Unfortunately, the economic consequences of lockdown are likely to exacerbate the divide between the “haves” and the “have-nots”; while many middle class workers have found their roles can easily be done remotely, those in lower paid manufacturing, services or retail sectors have not been so lucky.
Indeed, we could well see a “jobless” recovery where companies emphasise automation and new technology investment over re-hiring the millions that have lost their jobs. This would provide a major boost for such companies and a watershed moment for those sectors that supply the new technologies involved.
However, as one US analyst put it, this kind of scenario would be a “bear market for humans” with obvious implications for consumer spending, savings rates and consequently populist politics.
As a result of the pandemic, the year ahead is likely to be crater with pockets of volatility for both equity and bond markets as they become increasingly data dependant. News of further government stimulus and further progress on vaccine front and the vaccination rollout will be the key drivers.
Markets sighed in relied to the news that the US pharmaceutical giants Pfizer and Moderna had both developed gene-based vaccines with superb efficacy rates but they will soon recoil if subsequent problems such as logistics, side effects or the long term effectiveness of these, yet to be approved, vaccines delays them reaching the populace.
In the meantime, the West and parts of Asia face a prospect of a winter in which an unrestrained pandemic continues to force lockdowns. All this only reinforces the importance of diversification in the year ahead: not all asset classes or regions react in the same way, or at the same time, to global events.
There are already signs that, amid the turbulence of lockdown and the change of political leadership in the US, we’re now seeing a widening of the recovery. Value and smaller company stocks that have been in the shadow of growth and “big tech” names for almost a decade are starting to recover some of the ground that they have lost as investors rotate into these areas once more.
All of this means I expect to see active managers “stepping up to the plate” in 2021 and for investors who stay the course, without being “spooked” by the headlines, to rewarded for their tenacity.
The key is to focus on diversification, concentrate on the outlook and be nimble to adjust when required.