Q4 Investment Update – 2020 Review

We suspect that in many cases, 2020 will be one to forget for most of our clients. Fortunately we haven’t lost anyone to Covid19 so far but know several clients who have suffered ill health, in some cases still ongoing months later. We are hoping for a better 2021, albeit with a first half that looks likely to repeat many of 2020’s miseries.

If we could go back and erase the virus from 2020, the headlines about the 1.7 million dead from Covid, millions made unemployed and billions wiped off GDP would disappear. They might be replaced by positive headlines about global stockmarkets, as they grew 13% last year.

In reality the rise in the price of shares, gilts, gold, bitcoin and most other assets in 2020 can’t be divorced from Covid as it was the response of the Central Banks to the pandemic that drove most asset prices higher. Extraordinarily, given that globally we have been printed money and buying assets with it for a decade, it was more of the same in response to Covid. Free cash washes around the globe looking for something of value to buy and when it settles, it pushes prices up. If you already had money and had it invested (2020 was another brutal year for those sitting on cash) you continued to benefit as you have done for a long time now.

It didn’t feel like it on the 10th March, as having fallen hard the day before, both the London and New York markets fell a further 10% in their worst days since the 1987 crash. At its worst the FTSE100 had lost a third of its value. All this in response to the unprecedented step that most governments had taken to shutter their economies, leading to a 30% fall in output. There wasn’t a chapter in any textbook about what would happen next.

The huge global stimulus programme that followed, triggered a market recovery that set records. In addition the lockdowns accelerated 5 years worth of business moving online and boosted the value of the big tech firms. As these companies now make up such a large portion of the US markets, this drove values even higher. The FANG stocks of Facebook, Amazon, Netflix and Google helped push the Nasdaq up 40% and Tesla rose 700%.

Despite this global recovery, uncertainty over Brexit mean that Sterling and UK markets remaining suppressed, having been battered in March/April. This caused a problem for many UK active managers who continued to maintain too high an allocation to UK shares and therefore returned flat or even slightly negative returns in 2020 vs global market returns of 13%. We predicted this three years ago in this blog here.

No one knows where investments will go from here as; 1 we are in uncharted water and 2 no one ever does. What we continue to understand is that everyone should take as high a risk as they can stomach and stick with it for the long-term.

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