Investing may look a bit different in 2021 as the year starts with cautious optimism and global vaccine rollouts. The investment winners in the year of the pandemic were technology companies, but what lies ahead this year for your clients?
Portfolios will be guided by five trends this year: economic drivers such as recovery from COVID-19 and low global interest rates, along with trends like the movement to value, thematic investing and short & leveraged investing.
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Global economic recovery from COVID-19
We now have approved vaccines being rolled out in the US and UK, along with planned pipelines for the rest of the globe, but investors shouldn’t assume an instant return to normal. It takes time to vaccinate a population and many countries are still battling severe outbreaks.
Governments globally have announced generous stimulus packages to revive business activity. The European Union approved a coronavirus stimulus package to raise 750 billion euros1 after being hard-hit by the pandemic, particularly Italy and Spain in the later stages but countries like the Czech Republic struggling in later waves2. Investors can access European recovery through an ETF like ETFS EURO STOXX 50® ETF (ASX Code: ESTX).
Beyond this, many countries are considering or resuming broadscale projects to further economic growth, with infrastructure one option for this. For example, India, initially subject to the world’s toughest lockdowns to manage COVID-19, has forged ahead with its existing US$1.4 trillion infrastructure program3. Investors can access activity in India through an ETF like ETFS Reliance India Nifty 50 ETF (ASX Code: NDIA).
Low interest rates globally
Interest rates declined further in 2020 to support global economies dealing with the pandemic. It is likely cash rates will remain low through most of 2021 to support recovery with the potential of increases late in the year.
Low interest rates are typically supportive of business development and growth activities however have also placed pressure on yield-focused investors. Many have been forced to consider asset classes outside of fixed income to support their needs and this trend is likely to continue across the year. Some will take a ‘riskier’ approach to their yield investments and look for dividend-bearing assets, including equities.
Investments in “safe-haven” commodities including gold and silver have a low opportunity cost and offer stability so are likely to continue to be popular across the year. Precious metals also typically perform well in periods of low interest rates, with investors using these, particularly gold, rather than cash as a store of value and to protect against inflation4. Investors can access gold on the ASX through the ETFS Physical Gold (ASX Code: GOLD).
Movement to value investments
Investors tend to move away from growth investments like technology in periods of economic recovery or growth. As news of vaccines hit markets in late 2020, investors started to shift towards value investments such as banks or industrials. This is likely to continue across 2021.
The Australian sharemarket is strongly skewed towards financials and resources, which include companies typically falling into value investments so investors may look towards broad Australian exposures, slightly tailored cross-market exposures like ETFS S&P/ASX 300 High Yield Plus ETF (ASX Code: ZYAU) or sector exposures to refocus on value investments.
Investors have been increasingly interested in the themes of the future in recent years and being able to invest according to their views and values. This trend is likely to continue in 2021. Dynamics in the coming year, such as vaccine rollout or renewed focus on climate change are likely to see biotechnology and climate change related investments appeal in 2021. Investors interested in healthcare may take a thematic or sub-sector approach such as healthcare biotechnology through funds such as the ETFS S&P Biotech ETF (ASX Code: CURE). Investors focused on climate change may consider the growing range of ETFs capturing sustainability, or alternatively consider battery technology which is key to the viability of renewable energy. ETFS Battery Tech & Lithium ETF (ASX Code: ACDC) is the only Australian-listed ETF to offer exposure to the global battery technology supply chain.
Short & leveraged investments
Across the volatility of 2020, many self-directed sophisticated investors took a short-term approach to trading and embraced short & leveraged funds. The popularity in the previous year suggests we may see the range available in Australia continue to expand to support interest in investing based on high conviction views. Find out more about the short & leveraged products offered by ETF Securities here.
1. CNBC, EU leaders finally approve coronavirus stimulus package
2. How COVID-19 upended life in Europe throughout 2020 | Euronews
3. Source: India 2030: exploring the Future; National Infrastructure Pipeline
4. Gold investment demand remains well supported in 2021, Mining Report