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.

2020 will go down as a year of incalculable cost in human terms, yet a time of great innovation and hope too. In market terms, 2020 will probably be remembered as a year in which shares absorbed everything bad that was thrown at them and came back stronger. That, however, would be to belie a very difficult intervening period for investors, which saw share prices down by about a quarter at one point1.

Following the introduction of travel restrictions and the closing of non-essential businesses, a short, sharp bear market for stock markets in February and March threatened to set the tone for the entire year. At the time, fears ran high that the Covid-19 pandemic might have long term structural implications for the world’s economies and markets, as opposed to the deep but short recession that actually transpired.

In April, oil responded dramatically to a combination of concerns about falling demand coupled with a supply glut and diminishing storage facilities in America. West Texas intermediate crude prices went temporarily negative for the first time in history2.

Most markets repaired quickly after the spring though, on the basis that lockdown measures to combat the coronavirus would prove finite and that the actions taken by central banks and governments to stimulate economic activity would lead to a large and sustained recovery in 2021.

The advent of two Covid-19 vaccines in late November strongly supported this thesis, enabling markets to look past rising cases of the virus and the reimposition of restrictions across large parts of North America and Europe in December. Oil recovered remarkably well from its April lows, with Brent crude surpassing US$50 per barrel by December, as supply issues abated somewhat and the prices of some other commodities confirmed global demand was strengthening3.

This was a year to own a diversified investment portfolio. While the UK stock market has still to make up all of the losses it suffered in the spring, investors in the US and China especially – for differing reasons – will count 2020 as another good year.

The US market benefitted from having an unusually high exposure to “stay at home” technology businesses. Amazon, Apple, Facebook, Google among others each played their part in making the crisis more bearable and saw demand for their products and services increase. Expectations a Biden-led government will do much more to stimulate the US economy in 2021 have provided additional support.

China’s year of the rat – supposedly associated with wealth and surplus – largely turned out that way. The swift introduction of coronavirus containment measures meant that China was among the first to stop the spread of infections, enabling the country to mount a strong economic fight-back in the second half of the year. China is anticipated to have been the only major country to have seen its economy grow in 20204.

Despite a sometimes bewildering array of news developments supposedly driving financial markets one way and then the other over the past year, four simple facts jump out at me.

First, it is probably better to have a resilient investing strategy and to stick with it than resorting to trying to time market moves. Investors who sold during the snap bear market in February and March hoping to regain their positions at lower levels would have had to have been pretty nimble and of strong conviction for it to have worked out.

Doing nothing, meanwhile, paid off. Via a series of rebounds, world markets in aggregate are now trading at levels around 11% higher than they were at the start of the year5. As Warren Buffett’s long time associate Charlie Munger once said: “The big money is not in the buying and selling, but in the waiting”. Please remember past performance is not a reliable indicator of future returns.

Second, we should never underestimate the draw of an attractive investment yield. One of the consequences of the pandemic was a further fall in interest rates, with cash rates plunging again over the summer. Notwithstanding dividend cuts and suspensions in 2020, equities became relatively more attractive to both growth and income seeking investors during the pandemic.

Third, we ignore the impact of technology on economies and markets at our peril. Social distancing helped make up our minds about the benefits of shopping and working from home and staying in touch with family and friends virtually. While most of us will relish opportunities once the pandemic is over to return to the office, the high street, the theatre, the bowling alley and sports ground, the past year has educated us all about the alternatives.

These alternatives may not be our preferred options, but they do have benefits in terms of freeing up more time for other pursuits and making some interactions possible that weren’t before. It seems highly likely, therefore, that we have seen a step change of sorts there will be no going back from.

Finally, the other big winner to emerge from 2020 was sustainability. Governments around the globe – China’s, most importantly – contemplated spending some of the stimulus applied to their economies on renewable energies and energy efficiency.

China’s pledge to the UN in September to cut greenhouse gas emissions to net zero by a relatively distant 2060 may, on the face of it, seem to be lacking in ambition6. However, given that this pledge comes from the country to which most others have outsourced large parts of their own emissions, it is groundbreaking and could, in time, be viewed as a key legacy of 2020. More than ever, sustainability looks set to be a theme that will have a big impact on our future investing lives.

Markets end the year still dogged by uncertainty. No more so is that the case than in the UK, where there is bound to be a definitive change in the country’s relationship with the EU next month, with or without a deal. Covid restrictions running into January seem to be on the cards too.

The world, however, will continue to turn and bring with it investment opportunities, just as it did even during an incredibly challenging 2020. For example, a weakening US dollar and Asia’s efficient handling of the coronavirus crisis have helped pave the way for a further shift of power from west to east, and could spell another positive period ahead for emerging markets.

The future looks bright too for infrastructure related investments, as government programmes designed to help put the world back to work enter full swing over the next 12 months. That’s also a good reason to be positive about the prospects for industrial commodities like iron ore, copper and nickel, and the countries that produce them.

For investors aiming to gain a diverse exposure to world financial markets and currencies, the Fidelity Select 50 Balanced Fund offers one solution. This fund invests in 30 or so other funds, mostly taken from Fidelity’s Select 50 list of favourite funds. Alongside a 31% weighting in the UK, this fund currently has large exposures to Europe (22%) the US (27%) Asia (9%) Japan (5%) and smaller positions in Australasia, Canada and Africa.

Source:

1,5 Bloomberg, 17.12.20
2 World Oil, 20.04.20
3 Bloomberg, 18.12.20
4 IMF, 07.10.20
6 Reuters, 08.10.20

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. 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. Select 50 is not a personal recommendation to buy or sell a fund. The Fidelity Select 50 Balanced Fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made. The Fidelity Select 50 Balanced Fund investment policy means it invests mainly in units in collective investment schemes. There are just a few fixed limits for the three core elements in the fund. These are 30% to 70% for shares, 20% to 60% for bonds and 0% to 20% for cash. 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.

Topics covered:

Active investing; Asia and emerging markets; GlobalNorth AmericaUK; Volatility

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