When asked if he thought stock prices were going to go up or down, American financier JP Morgan famously (and not very helpfully) said he believed they were going to fluctuate.
It’s a healthy reminder that no-one can be certain of the short-term moves of markets. But over the medium- and long-term it is possible to identify trends that will endure and are likely to drive investment growth.
Here are three themes likely to be with us during 2021 and beyond.
Investing in a way that is sustainable – from an environmental, ethical, social or governance perspective – seems to have come of age in recent weeks and months.
First, there’s the fact that many ethical funds outperformed during 2020. In particular, they avoided badly hit fossil fuel investments.
Then there’s US President Biden’s renewed focus on the climate change agenda – including a raft of executive orders signed today, and action to rejoin the Paris climate change agreement on his first day in office.
And then there are the money managers. On 26 January, Larry Fink, boss of the world’s biggest fund manager, BlackRock, wrote in his annual letter to CEO’s that “no issue ranks higher than climate change on our clients’ lists of priorities”.
BlackRock controls $7.8 trillion of investors’ money, and where they lead, others follow.
You can read more about ethical and ESG investment options for Ireland-based investors here.
Vaccine success and healthcare investment
The markets roared with approval last November with the first vaccine trial results. It’s clear that the hope of vaccine success underpins growth over recent weeks.
But what’s the longer-term opportunity?
The pandemic has prompted renewed appreciation of medical science. It has revealed under-invested healthcare infrastructure globally.
That suggests a much greater public willingness to invest in healthcare, pharmaceuticals, and biotechnology. That’s why a fund like Worldwide Healthcare Trust is up 70% from its low in March 2020, and why its shareholders have doubled their money over five years. Its holdings in biotech, pharma and healthcare services seem poised to benefit from the new economic environment.
Government stimulus and inflation in a low-interest world
Governments worldwide launched massive economic stimulus during 2020. This has continued into 2021, with the US currently considering a $1.9 trillion package.
At the same time, many individuals and businesses are sitting on substantial cash savings, because they’ve been on able unable to spend during the last 10 months.
As we emerge re-emerge from lockdown is, this is likely to create a high level of pent-up demand in a world where capacity has reduced.
The result? Price increases and inflation.
Normally, central banks would damp down inflation by increasing interest rates. However, in light of the vast quantities of debt this does not look likely.
For investors, this means that bank interest will likely remain at zero or negative levels for the foreseeable future, and in order to preserve the real value of your wealth over the medium term, it will be necessary to invest for growth.