Wellian Weekly 11.01.2021

2020 Investment Review

2020 will go down as a year of incalculable cost in human terms, yet a time of great innovation and hope too. In market terms, 2020 will probably be remembered as a year in which shares absorbed everything bad that was thrown at them and came back stronger to deliver another good year for many investors. That, however, would be to contradict a very difficult intervening period for investors, which saw share prices down by about a quarter at one point during the year.

Following the introduction of travel restrictions and the closing of non-essential businesses, a short, sharp bear market for stock markets in February and March threatened to set the tone for the entire year. At the time, fears ran high that the Covid-19 pandemic might have long term structural implications for the world’s economies and markets, as opposed to the deep but short recession that actually transpired.

In April, oil responded dramatically to a combination of concerns about falling demand coupled with a supply glut and diminishing storage facilities in America. West Texas intermediate crude prices went temporarily negative for the first time in history.

Most markets repaired quickly after the spring though, on the basis that lockdown measures to combat the coronavirus would prove finite and that the actions taken by central banks and governments to stimulate economic activity would lead to a large and sustained recovery in 2021.

The advent of two Covid-19 vaccines in late November strongly supported this thesis, enabling markets to look past rising cases of the virus and the reimposition of restrictions across large parts of North America and Europe in December. Oil recovered remarkably well from its April lows, with Brent crude surpassing US$50 per barrel by December, as supply issues abated somewhat, and the prices of some other commodities confirmed global demand was strengthening.

This was a year to own a diversified investment portfolio. While the UK stock market has still to make up all of the losses it suffered in the spring, investors in the US and China especially – for differing reasons – will count 2020 as another good year.

The table below show the five best and worst performing sectors in 2020.

Best Performing Sectors

Growth%

Worst Performing Sectors

Growth%

Technology & Telecommunications

44.4%

UK Equity Income

-10.7%

China and Greater China

33.5%

UK Equity and Bond Income

-8.3%

Asia Pacific incl Japan

27.2%

Property Other

-7.3%

North American Smaller Companies

23.6%

UK All Companies

-6.0%

Asia Pacific ex Japan

20.0%

UK Direct Property

-3.6%

Source: Financial Express 31.12.19 – 31.12.20

Apart from UK Equities and Property, all other sectors delivered a positive return during the year. For the second year in a row, technology was the biggest winner of the year, with the US market benefitting from having an unusually high exposure to “stay at home” technology businesses. Amazon, Apple, Facebook, Google among others each played their part in making the crisis more bearable and saw demand for their products and services increase, and with many of our habits moving online this expediated the rapid growth in many of these industries and companies.

China, and the subsequent knock on effect it has on the rest of Asia, was the other big winner in 2020. The swift introduction of coronavirus containment measures meant that China has controlled the virus much better than the rest of the developed world and was among the first to stop the spread of infections, enabling the country to mount a strong economic fight-back in the second half of the year and are very much “back to normal” again.

UK Equities were the worst performing region of 2020 and were without doubt the losers of the Covid outbreak, not just because of the economy/Brexit/politics, but by the nature of how the UK stock market is made up by style and sector, such as the large weighting to energy and financials which underperformed. Sector performance often holds the key to regional performance, and the sector and style rotation seen in November after the news of the vaccines could see UK equities continue to benefit from this going into 2021.

Markets ended the year still dogged by uncertainty. No more so is that the case than in the UK, where there is bound to be a definitive change in the country’s relationship with the EU after a deal was finally reached at the 11th hour, and further Covid restrictions running into January following a spike in cases over the Christmas break. Once again, portfolio diversification remains key.

 

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