Investing beyond Covid-19 | What investment strategies should investors adopt in 2021? (Part 3)
The Covid-19 pandemic dominated headlines for much of 2020, with all the drama of a typical soap opera. And markets responded alongside the ebb and flow of investors’ sentiment. What can we learn from 2020? And how should we invest in 2021?
In our “Beyond Covid-19” series, we speak with experts in different fields to learn how we can learn from the hard lessons of 2020. In this third edition, we speak with Loh Yong Cheng, Senior Client Adviser at Providend, and You Weiren, Manager of Stocks & ETFs Research at iFast Financial.
Investing beyond Covid-19 | Advice from Loh Yong Cheng, Senior Client Adviser at Providend
What were some investing strategies that worked in 2020?
Year 2020 was a very unique year where we saw a deep dive in the market in March 2020, then a sharp recovery very quickly. We even ended the year with a market high.
So what worked was buying a evidence-based, globally diversified, cost-efficient portfolio of stocks and holding on to it. Adding more when the market came down was also a good idea.
What were some investing strategies that did not work in 2020?
What did not work in 2020 was trying to tactically reduce risk when the market fell, or trying to guess how strong the market recovery would be. We always witness how difficult it is to catch the bottom, from both a tactical and emotional point of view.
How would you recommend someone to invest in 2021, in light of what happened in 2020?
For 2021 so far, it seems like small companies and emerging market stocks are doing better, so it makes sense to have a diversified portfolio with a few factors that are shown to have persistence such as small and value, so that your portfolio can benefit from the areas of the market that do well.
How does Providend help investors invest wisely?
At Providend, we ensure that we work out a wealth plan with our clients. A wealth plan is one that helps our client achieve their life goals. A wealth plan guides us in making wise financial/investment decisions for them. Our client is also able to understand their needs, and their ability and willingness to take risk.
Our client advisers are also on hand to journey and partner with them through the market volatility. Most importantly, we review their life circumstances from time to time so that their investment plan remains commensurate with their life goals.
In the area of investment portfolio building, we build globally diversified and cost efficient portfolios using evidence-based funds that do not believe in timing the markets.
Investing beyond Covid-19 | Advice from You Weiren, Manager, Stocks & ETFs Research, iFast Financial
What were some investing strategies that worked in 2020?
Thematic investing was a strategy that worked really well in 2020.
Pre-COVID, thematic investing was already increasing in popularity due to greater access, as thematic ETFs have made it much easier for investors to gain exposure to long-term structural themes, such as the rise of digital economy, ageing population, and artificial intelligence.
But thematic investing exploded in popularity in 2020, as COVID-19 rapidly accelerated the digitalisation of the global economy, and investors eagerly sought investments tapping into the post-COVID era. Not all themes have been favoured equally, however, and the ones that really did well are those related to tech and the digital economy e.g. cloud computing, cybersecurity, and esports.
What were some investing strategies that did not work in 2020?
At the start of the year, value investing was tipped for a comeback in 2020, but it was not to be, as COVID-19 condemned value investing to yet another year of underperformance relative to growth investing. This is unsurprising, given that most value stocks are in industries that were negatively affected by the pandemic, such as financials and energy. Adding insult to injury is the fact that growth stocks (especially tech-related stocks) were on a tear in 2020, making the degree of underperformance of value relative to growth even more extreme.
But having said that, there was rotation into value stocks in the last quarter of 2020 amidst a decisive outcome in the US election and several successful COVID-19 vaccine trials, sparking optimism over an eventual return to economic normality.
How would you recommend someone to invest in 2021, in light of what happened in 2020?
If investors want to do well in 2021, they should be disciplined in their investment approach. While we do feel confident that risk assets can continue to do well heading into 2021, that doesn’t mean there won’t be volatility and short-term market setbacks in the coming year. Having an asset allocation plan, having proper diversification, doing regular rebalancing, as well as the use of regular savings plans are all examples of how investors can try to build discipline into their overall investment approach. The key thing to note is to not always make knee-jerk reactions to any market setbacks.
Also, we are of the belief that asset allocation must reflect the realities of a changing world. The year 2020 has ushered in a new reality, which is that COVID-19 has changed the role of technology. Technology is no longer seen as a luxury, but an essential part of our lives, not just for consumers, but for businesses as well. Technology has an important role to play, not just in our global economy, but in our portfolios as well. While tech stocks are traditionally seen as high-risk ideas that belong only in the supplementary (or satellite) portion of our portfolios, we believe technology should be a core holding in our portfolios instead i.e. we should always have some exposure to technology, whether or not they are expensive.
What does iFast do to help investors invest wisely?
Our research team constantly generates quality investment ideas, covering macroeconomics, stocks, bonds, as well as unit trusts, to help investors identify the next profit-making opportunity. We also leverage on our extensive product knowledge to help investors sift through thousands of available investment products (unit trust, bonds and ETFs), and recommending only the best-in-class products for their portfolios. For investors who prefer to have professional advice, we also have a dedicated team of investment advisers who are able to help investors with their everyday investing decisions.
(By Gwyneth Yeo)
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