What are the investor trends you should be aware of in 2021?
2020 was a blockbuster year for the stock markets across the world, and with the news of Biden becoming the US president and with a vaccine being distributed across the country – what does 2021 have in store for investors? Business Leader investigates.
Business Leader recently spoke with Alpesh Patel OBE, a noted authority on investing, to talk about the fundamentals of a sound investment strategy, and the impact of major, global announcements on investor decision making.
Patel revealed: “A lot of private investors and business owners do it the wrong way – they end up looking towards some journalists for a guide of where to invest and often fund managers, but I don’t think this is always a prudent approach as there is ample research to show that they cannot out-perform an index.
“What I would do is look for companies with good valuations, different styles, good revenue growth, consistent cash flow growth and a higher-than-average return track record – with low volatility around their market. Many investors ask – where can you find that sort of information? There are a lot of free tools out there on the internet. I hold 15 stocks for 12 months and then I review them, and I believe this is a good strategy. There is no point constantly reviewing – and more investors should be doing it this way.”
Regarding the recent news of Biden’s victory and the vaccine had on the stock markets, Patel said: “Well if you look at the American markets – they are at all-time highs – which is incredible! But then you look at the earnings and the profitability’s of the underlying companies – not just the large companies like Microsoft, Apple, and Alphabet – but a broader spectrum of the market, there are massive parts of the market that are suffering.
“We actually saw was a fall in March from February – but since then you have seen a 100% return since the end of March in these huge organisations. There is an old saying about the markets that elephants don’t dance – in other words, big companies are not supposed to give you those returns – but it has been a very exciting time. It just shows that your money has been working hard for you since the end of March to get those returns.”
So, is it worth investing around a major announcement? He comments: “It is something that you want to avoid doing. The problem is that 90% of private investors will gamble around news – they’ll read positive news about a vaccine, for example, read articles about companies in pharmaceutical/healthcare – and they will start gambling with their investments. You are gambling, without knowing what you are gambling.
“The companies you want to invest in are the resilient ones, which when then the stock market fell between February and March were the ones that fell the least and rebounded quickest. These are the ones to focus on. For example, look at Microsoft – probably the safest company in the world – that is exactly what happened to them. Don’t be a moth to a flame of a news story – invest in hard data.”
2020: A YEAR IN REVIEW
As Patel revealed, the stock market rebounded in extraordinary fashion for many businesses, following the initial collapse in March. But, what did it mean to investors in the UK?
Luke Davis, CEO of IW Capital, comments: “Investing and investing wisely has never been easy by any stretch, but this year has been particularly difficult for investors at every level. 2020 demonstrated the value of long-term investing and future planning. The stock market crash in March triggered a real halt in investment, and although the market has not yet fully recovered, there has been strong growth since November and in places such as the US, share indexes are actually higher than the last year.
“There have been winners and losers from each stage of the pandemic with sectors, like travel, feeling the true impact of the pandemic and others, like online solutions, seeing growth and opportunity in a time of financial turmoil. But this is true of any world event and has forced investors to look to be more future-facing. News around Brexit has also shone a light on UK-based businesses, who many have felt are under-priced, and such businesses that are unaffected by Brexit trading have turned out to be a great investment for the new year. 2020 has taught investors a lot, but most importantly it has shown that patience and the ability to shift focus if needed is paramount.”
It was the second half of the year that lit the fire for investment across the globe, but as Patel stated, investing on the back of major news can be a risk.
Simon Crookall, Founder of InvestEngine, said: “2020 was a rollercoaster ride for investors: the pandemic triggered a stock market plunge which was then followed by a very rapid rebound. It showed the importance of investors holding their nerve and sticking to their long-term plan, rather than panicking and selling up when markets fall – which crystallises losses.
“With the Nasdaq, the US technology index, up 40%, it was also a year of the hot stock. The stellar share price growth of Tesla, the electric car company, attracted a stampede of novice stockpickers using free mobile-based investment apps. The concern is that many of these newbies don’t understand the risks of investing in hyped-up individual companies, whose shares can come down as fast as they go up.”
Following the news at the end of the year that vaccines were going to be distributed across the country, it has set up an exciting year ahead for investors.
Oliver Gregson, Head of UK and Ireland at J.P. Morgan Private Bank, comments: “2020 was an intense and volatile year. The coronavirus pandemic has cost over one million lives worldwide, and the ensuing lockdowns catalysed the most severe economic contraction since the Great Depression. However, we are starting to see the light at the end of the tunnel. Welcome news on COVID-19 vaccines arrived near the end of a difficult and volatile 2020. In response, broad equity markets are close to all-time highs, and the stocks of companies in industries most impacted by virus restrictions have been rallying in anticipation of the benefits that a return to normal will bring.
“We believe the global economy will continue to heal. In fact, by the end of last summer, it seemed likely that the healing process had already started, with some sectors, including technology and housing, doing remarkably well in the new environment.”
THE YEAR AHEAD
With this in mind, what can investors expect in the year ahead? And where should they be looking to acquire stock?
Patel comments: “The ones I’d suggest are some billion-dollar companies – good, solid businesses. Based on stats like valuation growth, cash flow, etc – TechTarget are a good one according to my information.
“It is like a Google for businesses, which gets a cut when deals are made by companies. Other good ones are Square, the payment processor; PayPal, a name we all know but is still a solid investment; Trade Desk Inc, which has had solid growth. You then have your Alphabets, Amazons, Apples and Microsofts.
“I still own stocks in Visa and Adobe. But the lesser-known ones that I invested in like TechTarget were down to statistics, not news, and the valuation is up 30% in three weeks (at the time of writing).”
Away from the major stock market staples, there are a lot of reasons why this is the year there may be a flurry of activity.
Crookall explains: “Most people have too much of their savings in cash and too little in stock market investments. With interest rates on the floor — and staying down for the foreseeable future — savers need to consider investing in the stock market for the chance to earn a worthwhile return on their money.
“Low-interest rates are also a challenge for those businesses fortunate enough to have built up cash reserves. As with personal investors, business owners are increasingly aware of the poor deal they are getting from their banks and are looking for alternative solutions for higher returns.
“Meanwhile, the surge in sign-ups to trading apps in 2020 shows that people are prepared to put their money in the stock market even in a time of uncertainty.”
Whether you are an experienced investor or one of the new-age entrants who are making use of trading apps – there are several sectors to keep an eye on in 2021.
Davis comments: “Throughout last year, sectors such as hospitality have been hardest hit as a result of the pandemic and the restrictions that have been put in place, but these industries that have been hurt the most might also be the ones that recover the best, as people rush back to normality, so might actually be the sectors to keep an eye on. Green tech is also on the rise, especially here in the UK and is an industry that could also attract a significant amount of investment from both the UK and abroad. Boris’ green plan has sped up what is already a fast-growing sector and one that looks to be a leader here in the UK, now that we have left the EU. In addition to this, healthcare will also likely remain strong, with biotech likely to see further growth.”
The tech sector – as it was in 2020 – will be the key focus for investors, and with an increased amount of new tech sub-categories, and continued integration into everyday life – this is where Damian Mohammed, Investment Director at GC Angels thinks a rise in interest will be.
He said: “As the digital uptake has been accelerated by the pandemic, companies that provide tech-enabled solutions, accessible from the comfort of the home, will continue to thrive in 2021. EdTech, MedTech, eCommerce, FinTech and an array of other tech-enabled sectors have already changed the way that early adopters and younger generations live their lives. Therefore, due to recent habit change from government restrictions and closures, we are likely to see the mass market switching to digital alternatives.”
In wider society, there has been a renewed focus on sustainability and the ‘green economy’, and this is where Gregson believes investors should be looking. He said: “2020 was a breakout year for sustainability and sustainable investing; the S&P Global Clean Energy Index was up nearly 100%. Sustainability is a powerful trend that will grow in force in the coming years. We expect a big step forward toward developing a more circular economy, especially in the food industry. By 2030, a circular economy could yield up to $4.5tn in economic benefits, solving the annual problem of 1.3 billion tons of food waste, 92 million tons of textiles in landfills and 45 trillion gallons of water wasted just through annual food production.”
Buoyed by a positive end to 2020, a vaccine on the way and sectors that are set to exponentially, grow – there are several trends that investors should keep in mind.
Mark Sevier, Senior Investment Research Analyst at Alpha Portfolio Management, said: “For investors, the long-term structural changes such as online trends have become embedded with consumers and will inexorably grow, so the technology sector is likely to remain a winner. However, some valuations have been driven to extremes and one of the themes for 2021 will be the growth versus value debate.
“While the first quarter of 2021 will again be challenging, the year should see a significant recovery in global economic activity as government and central bank stimulus combines with some return to normality, due to the vaccination programmes. Those cheaper, cyclical value businesses that suffered most during the peak of the Covid-19 crisis should do better as their markets recover.”
Jeremy Thomson-Cook, Chief Economist at Equals Money concludes: “The wider movement in markets hinges around the answer to one question; do you see the US dollar strengthening or weakening in the next year?
If you think the USD strengthens then you are more likely to be doing so on the belief that markets are overly optimistic at the moment and therefore bond yields should be lower and equities cheaper as well, given the risk to corporate earnings in the coming year.”