2020 was a challenging year for us all due to the experiences of Covid-19, but it was also a very difficult year to navigate for the investment markets. 2020 started with positive momentum but the pandemic that began in spring and the events that followed caused one of the severest but briefest global bear markets we have experienced. Towards the end of 2020 many equity markets were again hitting new highs due to the vaccine breakthroughs supporting our strategy to ‘keep calm and carry on’ in volatile markets. However, investment returns have varied dramatically in 2020 between different asset classes, geographical regions, sectors and market styles justifying once again the need for diversification.
Divergence in equity market performance
The divergence in equity market performance was quite stark in 2020. In the UK equity market, the FTSE 100 index returned -14.34% in 2020, having fallen -32.55% in a 29-day window (between 24th February and 23rd March 2020), source: Morningstar.
This was the shortest and most severe fall for the FTSE 100 Index in living memory. The stock market falls in 1974, 2000–2002 and 2008/9 were greater, and the sharp fall on Black Monday (& Tuesday) in 1987 was more severe but none compared to 2020 in both speed and severity of the fall. However, the fall in the UK’s leading market index was not alone as the table below shows, other leading indices suffered similarly.
|From 24/2/20 to lowest point|
|FTSE 100||UK - 100 companies||-32.55%|
|FTSE All Share||UK -All Share Index||-33.99%|
|S&P 500||US - 500 companies||-24.40%|
|Dow Jones Industrial Average||US - 30 companies||-27.68%|
|Rusell 2000||US Smaller Co's Index||-34.95%|
|MSCI World||Global Index||-32.42%|
|NASDAQ||US Technology Index||-23.90%|
|SSE Composite||Chinese (Shanghai) Index||-6.41%|
|CAC 40||French Index||-31.52%|
|Italia All Share||Italian Index||-36.15%|
|IBEX 35||Spanish Index||-33.07%|
|FTSE Eurotop||European Index||-27.21%|
Thankfully not only was it the shortest sharpest fall in the FTSE 100 Index’s history, but also the speed of the recovery was also unparalleled.
Having bottomed out on March 23rd, the following day the FTSE 100 Index had its second-best day in the last 20 years (up 9.05%) and was up almost 14% over 2 days. (Source: UK.Investing.com Worldwide). Many other equity markets had also recovered much of their losses by the end of June.
The summer then saw a relatively flat period before most equity markets rose again on the announcement of the various vaccine breakthroughs in early November, and many markets rallied at the year end.
|Full Year - 2020||5 Year (annualised)|
|FTSE 100||UK - 100 companies||-14.34%||+0.69%|
|FTSE All Share||UK -All Share Index||-12.46%||+1.30%|
|S&P 500||US - 500 companies||+12.67%||+14.66%|
|Dow Jones Industrial Average||US - 30 companies||+3.94%||+13.62%|
|Russell 2000||US Smaller Co's Index||+14.71%||+13.39%|
|MSCI World||Global Index||+11.67%||+9.48%|
|NASDAQ||US Technology Index||+39.21%||+22.65%|
|SSE Composite||Chinese (Shanghai) Index||+17.54%||+0.99%|
|CAC 40||French Index||-1.90%||+7.77%|
|Italia All Share||Italian Index||-0.24%||+4.81%|
|IBEX 35||Spanish Index||-10.68%||+0.54%|
|FTSE Eurotop||European Index||-3.38%||+4.22%|
It can be clearly seen that there is a huge discrepancy between the performance of different equity markets, with the UK being amongst the worst for 2020. This is largely down to the make-up of the UK market (with large weightings in Oil and Banking companies that were among the worst performers during 2020).
2021 Investment Outlook
The roll-out of vaccinations to health care workers and the older population has started, although it is still unclear how quickly the population can be vaccinated against Covid-19. It will depend on many factors including the speed at which vaccines can be manufactured and distributed. We hope that by the second half of 2021 we return to a more normal existence.
Although many equity markets have hit new highs recently, looking ahead to 2021 we expect markets to remain volatile. However, equities should benefit from the low interest rate environment. We continue to recommend clients diversity their investment portfolio and maintain a long-term investment perspective.
Lonsdale Model Portfolios provide positive returns for 2020
‘When clients ask me what kind of return, they can expect from their portfolio, I normally highlight a return of around 5% per annum. Historically returns on a medium risk portfolio have been higher than this – around 6.5% - 7% per annum, but I tend to be more cautious. However, it is rare that we see a year where the ‘average’ return is the actual return. For example, almost all clients saw losses in 2011 and 2018, with negligible returns in 2015. However, returns were well above average in 2012, 2013 and 2019. It therefore seems ironic given the considerable volatility we experienced this year, that 2020 turned out to be one of the few years to provide ‘average’ returns to many clients.’
Many of our clients are invested in the LGT/Lonsdale Model Portfolio funds and these returns were as follows:
- Low – 3.5%*
- Low to Medium - 4.4%*
- Medium to High – 6.5%*
- High – 10.5%*
(* Please note – these numbers are a sample of clients in each of the Lonsdale / Vestra portfolios. These returns are reduced for charges, and individual client returns will vary dependent on their Lonsdale Services fees and platform fees.)
Our independent financial advisers recommend clients diversify their portfolio.
‘2020 was probably the trickiest year in my 32 years in the investment industry. However, two of the key themes of the 2020 equity market performance, the need to diversify and to prepare clients for equity market volatility supported client performance throughout the period. We always encourage clients to spread their risk by investing in different global asset classes. The asset allocation of the Lonsdale/LGT Vestra model portfolios supports this position. When we meet clients’ we also discuss equity market volatility, to prepare for short-term setbacks. As we witnessed in 2020 the worst days in the equity markets are often followed by some of the best and missing just a handful of days can affect your returns for years. We always recommend clients maintain a long-term perspective (normally over five years) when they invest. We review a client’s risk profile before deciding which funds to recommend so they are aware that the value from an investment and the income from it could go down as well as up. We regularly communicate with our clients about portfolio expectations and potential returns and build these into their long-term cash flow projections. We try to use realistic average return projections based on historical returns and the client’s acceptance of investment risk. These projections attempt to take into account market falls – we’re not simply cherry picking the good years and using those figures.’
To find out more about investing in diversified model portfolios please contact your local financial adviser in North London, St Albans, Ringwood, Harpenden, Stafford, Leeds / Bradford, and Ware, or complete our booking consultation form and your local Lonsdale Wealth Management financial adviser will call you back.
Past performance is not a reliable indicator of future performance; and the value of investments, as well as the income from them can go down as well as up, and investors may get back less than the original amount invested.
Please note that the figures provided refer to historic returns and that past performance is not a reliable indicator of future results.
All returns are shown in sterling terms, but all non-sterling index returns may increase or decrease as a result of currency fluctuations.