Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Some good news. “Blue Monday”, the third Monday in January and apparently the most depressing day of the year, has now been and gone. And while we slowly trudge through the start of 2021, the days are only getting longer. It’s around about this time of year that we’ve reclaimed an hour of sunlight since the December lows.

Perhaps it’s possible we can now begin to look forward to the Summer, and maybe even a return to normality?

Ask the UK’s major airlines and they’ll be the first to encourage such optimism. It’s the message of Ryanair’s controversial ‘Jab and Go’ advert, which says: “vaccines are coming, so book your Easter and Summer holidays today.”

There’s nothing subtle here, and that’s no surprise. It’s been a torrid 10 months for the airlines, whose only hope of respite appears to rest on the successful rollout of Coronavirus vaccines in time for the summer holidays.

Their hopes may just be realised. Earlier today, easyJet said bookings for this summer are up 250% on last year. EasyJet chief executive, Johan Lundgren, attributed the rise to pent up demand: “We know there is pent up demand - we have seen that every time restrictions have been relaxed, and so we know that people want to go on holiday as soon as they can.”

Investors have taken Lundgren’s optimism to heart. EasyJet’s share price at time of writing has risen over 4%, while fellow airlines IAG, owner of British Airways, and Ryanair have also climbed.

Their rises are tracking a now familiar trend. Just as Lundgren points out that bookings increase every time restrictions relax, so do the airlines’ share prices. Back in November when Pfizer announced its vaccine, easyJet ended the following day up 35%. Since then, rises and falls in its price have almost directly mirrored the tone of the latest virus news. Please remember past performance is not a reliable indicator of future returns.

There are, of course, complications. Ability to travel abroad does not depend solely on a successful UK vaccination programme. Countries may keep airports shut until their own population is vaccinated, and we now know the speed and ease with which international borders can close. There will certainly be turbulence along the way back to normality.

Nevertheless, it now seems clear that the fate of easyJet and other airlines is inexorably tied to the fate of the virus. Where other industries have been able to adapt and even flourish through these unprecedented times, there’s little been wriggle-room for airlines. For them, it’s normal or nothing. And as my colleague Tom Stevenson likes to say, sometimes the obvious investment conclusion is the right one.

But this also opens the door to less obvious conundrums. If we do all get back to normal and it’s suddenly the out-of-favour, “value” or “cyclical” stocks like airlines that look attractive, what happens to those that performed best last year?

Take the big US tech stocks. People have long been paying above the odds for these companies, whose appeal lies in their sustained growth even in the face of adverse conditions. They’ve gone from strength to strength and left egg on the faces of contrarian investors who refused to believe the hype. In the perennial battle between these “growth” vs “value” stocks, the last decade has been a resounding victory for the former, and the last year an unrivalled kick in the teeth for the latter.

But such excess hasn’t gone unnoticed. Valuations on growth stocks are starting to look uncomfortably stretched. Talk of the ‘bubble bursting’ and the market falling is mounting. Should the successful rollout of vaccines finally make value attractive again, that could raise some uncomfortable questions for many fund managers and investors alike whose portfolios have become dependent on growth’s outperformance. It’s a dilemma that Tom confronts directly in his fund picks for 2021.

Now, perhaps more than ever, is a time to tread with caution and ensure your portfolio is well-diversified enough to cope with all eventualities. We never know exactly what will happen in markets. While some things appear certain, they often end up raising more questions than answers.

Five year performance

As at 18 Jan
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
easyJet -31.9 52.4 -20.6 32.1 -42.6

Past performance is not a reliable indicator of future returns

Source: FE, total returns as at 18.1.21

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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