Wellian Weekly 08.02.2021

2020 in Pictorial Form

The year we have just been through will be remembered for a long time. I spent most of the year working from my home office (a single room not much bigger than a cell, although at times it did feel like one).  My commute was cut from 60 minutes to 6 seconds – which was great.  I got to spend more time with my wife and children – which was great (for me at least). Allegedly I saved money by not using the train (although my bank balance wouldn’t agree).

From an investment perspective, I think most will look back on 2020 as the year of Zoom and Tesla.  A year where NASDAQ left most in its wake. A year of unprecedented central bank intervention and stimulus. A year that witnessed the quickest fall and bounce back from many metrics surrounding stock markets and economic statistics. A year which saw China – where the Coronavirus was first identified and became an epidemic which then spread globally to become a pandemic – saw its economy shut, then open and by the end of the year seemingly operate as if nothing happened (if only the rest of the world could say the same…). A year that politically saw a change in the White House and the UK and Europe part ways. Bitcoin probably deserves a mention, but would that be from an investment perspective, a speculative perspective or just an interesting aside?

One great thing about this profession of ours is the quantity of data that is generated. It could be argued that its one of the not so great things about our profession too, but I quite like looking at numbers and charts and graphs, so with the calendar rolling over, please find attached and below links to some that we think will help put 2020 into some perspective.

MARKET INDEX RETURNS

The table below (link to the file above) is updated monthly and simply shows returns (in Sterling – with income reinvested – source Financial Express) for a large number of indices. The indices are equity, fixed income, commodity, currency and total about sixty.  If you think there are any major ones missing, please do not hesitate to get in touch to see if we can add them for you.  The link has data going back to mid-2013.

As the table shows, 2020 was a year that had a number of indexes with double digit returns (FTSE Korea, FTSE World, MSCI Emerging Markets, Nikkei 225, S&P 500 for instance); it also had a number of indices that lost money, and a handful that lost double digit returns (FTSE 100 and FTSE All Share being two of these five).

RED & GREEN REPORTS

We think the “Red and Green” reports are a great way to look at the long-term powers of investing.  Below is an example of the MSCI United Kingdom report, but the hyperlink above includes many of the major indices. Once again, if there are any indices missing that you would like to see, please do not hesitate in getting in touch and we’ll see what we can do for you.

The table is very simple to understand. It is split according to month and year, and also includes the annual return and the quarterly return of the index.  If the return has been positive, it is green; negative will show a red output.

The tables at the top of the report below give some simple outputs. For instance, the data below contains 590 monthly datapoints. 340 have been positive, 250 negative which works out at 57:63%: 42.37% ratio. But, when looking at the number of quarterly observations (calendar quarters as opposed to rolling quarters) this number rises to 127 positive and 64 negative which transpires to 66.49%: 33.51%.  Simply put, the longer you have to invest, the greater the change you have to witness more positive periods of return than negative ones.

2020 was not a great year for investing in the UK as it registered a negative return overall (even though six of the twelve months were positive, and November showing a double-digit monthly return), but with 46 calendar years’ worth of data in the table below, and 35 of those being positive, it looks like the odds are stacked in your favour if you have a long-enough time horizon.

The table shows more green output than red. There is no denying there is risk in investing, and this table proves that, but we believe this shows some perspective. Obviously different indices and asset classes show different outputs.

ANNUAL MARKET RETURNS – COLOUR CODED

The table above (going back to 1981) shows annual returns for a number of major indices and sorted from best to worst. Each index has its own colour key and proves, if ever it were needed that a diversified portfolio spreads risk as one index is never at the top consistently.  Interesting to see that the Nasdaq Composite has been the best performing index for the past two years. Admittedly this is not the easiest to see on this document – downloading the file (hyperlink above) might be less straining on the eyes.

ANNUAL RETURNS – HISTOGRAM

The histogram below highlights the annual return of the index in question split into a 5% range with +30% and -30% being the extreme edges of the chart.  The most recent year is highlighted in green and the stacked nature of the table has the most recent year at the top of the bar. For example, in 2020 the MSCI Emerging Markets index returned between 15% to 20%. The last time a return was achieved in this range was 2006, and the time before that 2004. As can be seen below, the index experiences a large number of annual returns greater than +30%, but has also had 6 years when returns have been -15% or more.

Once again, if there are any indices that you want us to include that are not in the hyperlink above, please do not hesitate to get in contact with us.

We believe the tables / charts above are a great guide to share with clients who might be concerned about the merits of investing over the medium to longer term and we look forward to updating them as time progresses.

 

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