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Foster Denovo|News & opinion|News|Market Briefing – 21st December 2020

Market Briefing – 21st December 2020

We will look back on 2020 as the Covid-19 crisis year. In addition to which, one of the bitterest US presidential campaigns took place, whilst closer to home Brexit still rumbles on; at the time of writing, ‘no deal’ is still the most likely outcome.


However, as we move into 2021, a famous quote attributed to Thomas Fuller, a 17th Century British preacher and author, comes to mind: “It is always darkest just before the Day dawneth.”

November 2020 will likely be seen as ‘the Day dawneth’.

November saw the announcement of three  ‘covax’. And on 8th December, 90-year-old Northern Irish woman Margaret Keenan became the first person to receive the Pfizer-Biontech vaccine injection in the world (outside of the test group).

Earlier in November, markets benefitted from a post-US election rally, mitigating short term economic concerns, with world equity markets rising dramatically on the announcement of the various covid vaccines. With a no deal Brexit still on the horizon, how do the different geographical sectors and asset classes in 2020 compare with other years in the last decade?

Thomas Fuller

19th June 1608 – 16th August 1661

British scholar, preacher and author

 

Looking back over the 2010s, and including 2020 up to the end of November, predominantly caused by the meteoric rise in the ‘FANMAG’ (1) stocks, the US stockmarket in sterling terms has massively outperformed all other asset class sectors.

Looking below the surface however, the story isn’t that simple.

An analysis year on year – known as discrete performance – is enlightening.

Source: FE Analytics (2)

A patchwork quilt – geographies

Showing total return performance for the different global equity sectors, the story is somewhat different. Although the US appears top in four of the eleven years covered below …

Source: Financial Express (2). All indices are total return. Past performance is not a reliable indicator of current and future results. Data as of 30th November 2020.

… it clearly isn’t top for the other seven years, including not being top year to date this year. However, it is second in five out of the seven, including 2020 so far. So that’s a top two place in eight of the eleven years… so far.

Japan appears top for three years mid-decade; but is counter-balanced by being bottom in four years.

And the UK? Well, they say a picture paints a thousand words, and it certainly does when we look at the UK. No other geographical sector comes close to the UK’s five appearances at the bottom, including this year so far. 2016 was the last time the UK was top, and so – including the eleven months of 2020 – the UK has been bottom in three of the last four years.

A patchwork quilt – assets and philosophies

Source: Financial Express (2). All indices are total return, except for ‘Global Agg’ (3) which is an index of investment grade fixed interest securities (bonds). Past performance is not a reliable indicator of current and future results. Data as of 30th November 2020.

2019, and so far in 2020, the ‘Growth’ philosophy has been ‘top dog’, powered in the main by the US ‘FANMAGs’ (1).

Property, as represented by ‘REITs’, has been the most consistent performer by appearing either first or second during the eleven years. However, results for 2020 so far – likely impacted by the change in office usage during the pandemic – sees it tumble to penultimate place.

‘Value’ investing, perhaps recently maligned, has fared better than perhaps expected by being ‘mid table’ in most of the last eleven years. With ‘Small Caps’ consistently in at third place in five of the last six years.

Finally, in spite of recent media articles suggesting gold as a ‘safe haven’, the broader ‘Commodity’ asset class has disappointed by being in the bottom two places in seven of the eleven years.
What should this tell you?

Remembering that “past performance is no guide to future returns”, no matter what annual statistics show, from an investment perspective, investors should ignore short-term durations.

Focus should be on ‘smart diversification’. In other words, investing should be across different asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that includes growth and value.

Although ‘smart diversification’ doesn’t guarantee performance in any way and does not eliminate risk completely, having a diversified portfolio across asset types, geographical jurisdictions, investment styles and philosophies can help investors minimise their risks.

It is also important to remember that it is often the case that investors have a long-term investment time horizon. So, although ‘smart diversification’ does not guarantee against loss,  it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

As we have said before, we will continue to monitor the current financial situation and keep you notified of any changes that are made. If you would like to discuss how the current situation might affect you, then please seek professional financial advice to discuss your financial situation further.

Sources

  1. Facebook, Apple, Netflix, Microsoft, Amazon and Google
  2. FE Analytics 3) Bloomberg Barclays Global Aggregate

The next market briefing will be published on 15th January 2021.

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