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2020 was a memorable year for investors. We saw the fastest global equity market fall in history of 20% or more, with the MSCI World index falling 23% between 20 February 2020 and 3 March 2020 and the FTSE 100 down 27% in the same time period.

Swift action from governments and central banks worldwide provided support for markets and the MSCI World index went on to gain 12.32% in Sterling terms in 2020 whilst the FTSE 100 pared losses to -11.55% . In particular, November saw a turning point in the coronavirus crisis. The announcement of three vaccines that are effective against the virus offered light at the end of the tunnel and markets responded accordingly. The remaining question is how quickly these vaccines can be distributed and administered on a mass scale. It is also worth noting the strong performance for Asia Pacific equities in 2020 and the tilt towards this region within our model portfolios which runs in the range of 8% (cautious) to 26% (Adventurous). The Schroder ISF Asian Total Return fund gained 26.8% in 2020, whilst the Legg Mason IF Japan Equity fund was also a solid performer with a return of 40.5%. Our allocation to the Stewart Investors Indian Subcontinent Sustainability fund within our Balanced-to-Adventurous and Adventurous portfolios was also beneficial with the fund gaining 19.0% over the year.

The US market performed well in 2020, with the hotly contested US election not having much impact on returns, in Sterling terms the S&P 500 gained 13.65% in 2020. We took profits in our S&P 500 ETF allocation in November, however, due to the fact that the US market was looking overvalued in general and because large technology stocks were driving the market and could face a price correction if tougher regulation and taxation were introduced.

We reduced the exposure to UK equities within our model portfolios throughout 2018 and 2019. This proved to be beneficial as the UK market struggled in 2020 with protracted UK-EU trade talks, the impact of “lockdown” measures on economic activity and dividend cuts, some mandatory, all weighing on returns. The UK-EU trade deal was well-received by the market. Moreover, the UK market is undervalued compared to other global markets, in particular the US. However, there are still some bumps in the road with renewed measures to contain the spread of the coronavirus, rising unemployment and the time needed to introduce mass vaccination all potentially creating short-term volatility. However, in the medium-term the UK market has the potential to make a substantial recovery and dividends, which are an important component of the UK market’s total return due to the number of “blue chip” companies, also have the potential to be restored as the economy recovers. We also note the uptick in merger and acquisition activity, with international companies looking to buy undervalued UK companies, this could be beneficial for market performance.

Overall, we continue to advocate portfolios which are well-diversified geographically and by industry sector and which include an allocation to both equities and bonds. In an era of low interest rates, bond yields remain low and we continue to favour high quality (“investment grade”) corporate bonds over government bonds for the additional yield they can offer. The bond funds we held throughout 2020 and our multi-asset fund selections offered positive returns for the year, adding “ballast” to portfolios.

This article is for information purposes only. It does not constitute investment advice and is not a recommendation to invest. The value of investments and the income from them may go down as well as up and you may not get back your original investment.  Past performance is not a guide to the future.

Date of publication: 4 January 2021

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