Happy New Year. We hope you and your family had a safe and restorative Christmas break.
Welcome to our latest investment commentary covering the final quarter of 2020 and the year as a whole. This update provides some more in-depth commentary on the markets and our views moving forward.
2020 was marked by a number of significant market events, largely due to the COVID-19 pandemic. To summarise a few of these:
- The size and speed of the market falls in March were last seen in the 1930s.
- More than a third of the expected dividends from the FTSE All Share were suspended.
- The Brent Crude Oil price fell to an 18 year low of below $20 a barrel.
- The subsequent market recovery was one of the largest ever rallies in such a short space of time.
- November saw the largest rotation from growth orientated companies to more economically sensitive companies in 12 years.
- Gold made a new all time high, breaching $2,000 per ounce for the first time.
- Donald Trump became only the 7th President to not achieve re-election.
- A deal was done with the EU!
On reflection, 2020 was characterised by significant losses and gains over short periods of time, creating very large dispersions in returns. Each end of the spectrum was populated by quite a narrow range of investments, with internet/technology-based businesses generally doing well and economically sensitive businesses such as airlines doing very poorly.
We believe the pandemic will have lasting effects on the way we live. Our use of internet based businesses and cashless payments for example have increased dramatically and it is unlikely we will revert to our old habits as the pandemic subsides. This creates opportunities for many businesses operating in these industries and it is likely we will not only see an acceleration in the emergence and growth of these businesses, but it will also lead to the creation of several new industries that do not yet exist.
An area that continued to gain attention was sustainable investing, commonly abbreviated as ESG. There were some concerns that the progress made here would be damaged as countries would favour economic recovery over their green initiatives. This, however, did not transpire and in fact the initiatives continued to gain momentum. Renewable energy in particular has done extremely well and there have been some high profile winners in the electric vehicle space (Tesla), which is becoming a very competitive industry. We have become accustomed to blue and white-collar jobs, but these new industries are creating thousands of so called “green collar” jobs. Joe Biden’s victory has significantly improved the outlook for green initiatives given his positive stance and so we remain positive on ESG investing.
We would now like to review the previous quarter before moving on to our outlook.
Q4 2020 REVIEW
The markets delivered good returns over the quarter, which is seasonally a good quarter, particularly leading up to Christmas. November was one of the best ever months for US equities as Joe Biden won the US Presidency and news of a vaccine broke. Following these developments, we allocated some of the cash in the portfolios to the themes we have mentioned in previous communications.
Due to the vaccine news, the sectors that had been impacted by the pandemic staged a recovery. This was particularly notable in the airlines and energy sectors. The dispersion in returns we had seen earlier in the year therefore reduced and several geographies other than the US performed well. The US markets did however hit new all time highs.
We have previously mentioned the difficulties ahead for the various economies in the Northern Hemisphere, given we are in the Winter season. The new strain of COVID-19 is creating significant problems in the UK and parts of Europe, leading to renewed lockdowns as viral cases spiral. We view this as a temporary concern given the vaccine developments, which we touch on later, but the economic damage will continue for now.
With record voter turnouts, we saw Joe Biden emerge as the victor in the US election, even though Donald Trump is yet to concede. We were concerned that a Biden win, with the Democrats controlling both the House and Senate, could lead to some volatility due to their desire to increase corporate taxes. However, although they have won the House, it initially looked unlikely they will win the Senate meaning that any such reforms most probably won’t come to fruition. This was seen as a positive by the markets, sparking the November rally. Since then, it now appears the Democrats may clinch the Senate too and with their pledge to launch a large stimulus programme, this has fuelled further optimism in the markets.
Deal with the EU
We have at last agreed on a deal with the EU, which came into effect on the night of New Year’s Eve. There are of course various implications for us as UK residents, but as far as the portfolios are concerned, this has had very little impact. I think it is fair to say a deal was already being priced in, with UK assets performing well and the Pound appreciating in the month leading up to the deal.
The containment of COVID-19?
As long as the current vaccines we have remain potent against the various strains in existence, it is very possible that we could contain the pandemic by late Spring or early Summer. It does however seem that things will get worse before they get better, but there is light at the end of the tunnel. We are therefore optimistic about 2021. With continued support from the Central Banks and Governments and an economic recovery in sight, we believe equity markets could deliver good positive returns.
We have mentioned our thematic approach on several occasions, with Cloud Computing being the most recent addition to our higher risk portfolios.
The economically sensitive sectors that have struggled during the pandemic could continue to recover in 2021. With our themes in mind, we are looking to capture some of this by introducing Infrastructure again and Fintech.
These additions will lead to the portfolios containing a number of exciting themes that have good long-term prospects.
We echo much of our previous quarterly note that in aggregate, we feel more positive about the medium-term outlook for the markets and sectors we have mentioned and are excited about the new funds being brought it.
We will shortly be making changes to our portfolios, with the addition of some new themes as mentioned above. Please keep an eye on your inbox for the fund switch notification.
MARKET INSIGHTS – WEBINAR INVITE
We are delighted to announce our next investment webinar will be hosted on 19th January at 13.00. We will be discussing our outlook for 2021 and some of the ideas we have for the portfolios. Please click HERE to register for this.
We hope you find this review informative and look forward to hearing from you if you have any questions.
This publication has been prepared for information purposes only by Carrington Investment Consultants Ltd t/a Carrington Wealth Management. The value of investments, and any income generated from them, will be affected by interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. Investors should be aware that the value of units may well fall as well as rise, is not guaranteed and that past performance is not a guide to future performance. Different funds carry different levels of risk and investors may not get back the full amount invested.