At a glance, a casual observer looking back on the investment market in 2020 might wonder what all the fuss was about.

Here’s the annual performance delivered by developed markets, a fund many of our customers hold, for example.  If anything, 2018 and 2019 look like the unusual years!

Source: MSCI world index (Eur) (2020 data is for 11 months to 30 Nov 20)

Of course, the reality is very different.  In fact, 2020 was a bit of a rollercoaster in markets, as in life itself.  March 2020 saw a slide in the value world shares of around 17% as lockdowns were implemented.

At that time, we advised that investors needed a three-pronged strategy:

  • Be ready to invest
  • Invest gradually to manage volatility
  • Diversify

Investors who followed our approach, and held their nerve, have reaped handsome benefits.  From 1 April to now, markets have powered ahead.  As a result, developed world equities were up around 4.8% in the 11 months to 30 November.

What happened?

We’ll, it’s long been clear, clear that markets aren’t the same as the wider economy.  Even as business performance tanked, markets were identifying winners and losers from the changed conditions.

We saw three distinct trends gather strength during the year:

1. The continued march of tech

Technology businesses were able to continue to operate in a way that bricks-and-mortar ones just couldn’t.  Their stock rose accordingly.  In fact, our favourite tech fund is up a whopping 102.4% this year!

It can’t last forever, and value stocks will have their day in the sun.  But there no doubt that funds which hold tech stocks that can demonstrate a path to market dominance – rather than just burning investors’ cash – can experience immense growth.

2. ESG

Funds which value high standards of environmental, social and governance saw a lot of interest.  A major reason for that was the oil price crash.  This happened almost unnoticed amid all the noise in March.

One effect was that ethically managed funds were spared some of the worst losses, and managed to post growth ahead of the wider market.  One of the funds we’ve consistently tipped, Aviva’s Stewardship fund, is up 13.6% year to date.

You can read our thoughts on the outlook for ethical investing in last week’s Sunday Times supplement.

3. Healthcare and pharma

It’s obvious really.  Unless you’ve been living under a stone for the last 12 months, there seems little doubt that the healthcare and pharmaceutical sectors are going to see increased investment in the years ahead.

Anticipating this, investors have backed their stocks as likely beneficiaries of changing demand.

What does 2021 hold?

If this year teaches us anything, it’s humility and the fact that the world can take an unexpected turn very quickly.

What certain is that continued government stimulus is supporting economic activity and growth, and that there will be opportunities for investors.

It pays to invest with that in mind.  We’ll be publishing our outlook for 2021 shortly, with ideas on how investors can protect and enhance their wealth in the months and years to come.

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