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2020 has not unfolded the way many of us expected it to. At the start of the year, if someone had told you that most people will be working from home, unable to travel overseas and that bars and attractions would be mandatorily closed for a temporary period, you probably would not have believed it. Unfortunately, that’s exactly what has happened in the first half of the year.
Neither could any of us have anticipated the stock market crash around March 2020. From 19 February 2020 to 23 March 2020, the S&P 500, comprising the largest and most liquid stocks in the USA, declined 34%, from 3,386.15 to 2,237.40.
The only thing more surprising was the unexpected bounce back, with the S&P 500 recovering to hit 3,235.66, as of 23 July 2020, which was higher than it closed at the end of 2019 (3,230.78). This hits home a timely reminder that predicting short-term stock market movement can be a futile endeavour.
That said, it’s important to recognise that the post-COVID-19 world on the horizon will be different from what we have become accustomed to in the pre-COVID-19 world we left behind. Like it or not, COVID-19 will have a long-lasting impact on some companies and even entire industries. At the same time, it will also create many new opportunities.
As investors, there are some trends that we can focus on as the global economy shifts towards how life and commerce are going to be after COVID-19.
#1 Medical & Healthcare
The COVID-19 pandemic has reminded us again about the importance of medical and healthcare companies. As my colleague Dinesh observed in a recent article, healthcare companies in Singapore have performed exceptionally well in 2020, with the iEdge SG All Healthcare Index climbing about 66% since the start of the year (From 2 Jan to 23 Jul 2020).
Whether these companies are treating patients, involved in developing a vaccine or supplying personal protection equipment, many of them have been at the center of attention in recent months as the world scramble to manage the COVID-19 outbreak.
Many governments around the world also had to dig deep into their pockets to tackle the current problem, and we can expect this to continue in the foreseeable future. Even after the world has overcome COVID-19, medical and healthcare matters are likely to remain a national priority for many countries, and the world will continue to take added precautions to contain any future potential outbreak of viruses.
Money that used to go towards travelling may be redirected towards medical and healthcare companies instead. The right companies in the sector can take advantage of this potential for strong growth in the years to come.
Even as brick and mortar companies struggled badly in the past few months due to lockdowns around the world, technology companies, have largely been left unaffected or even seen business boom because of the way they operate.
For example, the NYSE FANG + Index, which comprises the top 10 technology companies in the world such as Facebook, Apple, Amazon, Netflix and Google, is currently trading at 4,601.48 (as of 23 Jul 2020). This is significantly higher than the 3,024.08 (2 Jan 2020) at the start of the year.
In the past, technology companies have usually been viewed as risky investments, since they are seen as stocks in high growth sectors that would be the first to be affected during an economic slowdown. However, as seen in the COVID-19 pandemic, technology companies are the ones that continue operating normally and are seeing some growth during difficult periods. For example, many of us are using Facebook, Google and Netflix in the past few months to stay connected with our family, friends and colleagues and for our entertainment needs.
There are many technology companies rapidly building market share during this period and seeing their value and resilience recognised by investors. Zoom, a video conferencing company, has seen their share price climbed 365% from US$68.72 (2 Jan 2020) to US$251.50 (23 Jul 2020), in just six months as people around the world started widely adopting the use of video conferencing and telecommuting tools.
In the future, technology companies will likely continue dominating our economy, including disrupting traditional sectors. For example, Tesla has recently overtaken Toyota to become the most valuable car company in the world and we should expect to see more technology companies taking sizeable market share in major sectors across the globe.
#3 Consumer Staples
Traditionally considered as defensive stocks, companies that produce or distribute consumer staples have benefitted from COVID-19 as people rushed to stock up necessities out of uncertainty. For example, on the back of strong share price increase in 2020, local supermarket chain Sheng Siong is now worth about S$2.43 billion (based on its share price of S$1.62 as of 23 Jul 2020).
It’s worth noting that many such companies have remained resilient in 2020 despite the challenges they had to face, such as coping with safe distancing measures. Many have also embraced new ways of doing things, such as delivery services to reach more customers.
While consumer staples stocks may not always produce a high return compared to technology companies, many may pay out a higher dividend yield, which would appeal to investors seeking regular income.
Even as consumer staples continue to be an essential cog in our economy, we should keep an eye out on how the sector performs in the next couple of years, particularly for the companies that can embrace technology and merge their traditional offerings along with a digital solution.
Gold has typically been considered as a safe haven for parking money whenever fear, inflation or volatility heightens in the financial markets. The COVID-19 pandemic has supported this theory.
At the start of 2020, gold was trading at US$1.527 per oz (2 Jan 2020). At its lowest point this year, it was trading at US$1.474.25 per oz (19 Mar 2020), and price is now at US$1.868.66 per oz (23 Jul 2020). The resilience in gold price is a reminder that this valuable metal can continue to be an important component in our investment portfolio, providing us with much needed protection against volatility and inflation during both good and bad times.
Given the current low-interest rate environment due to quantitative easing measures, gold is likely to remain an attractive option as a good store of value.
Ensure You Have A Diversified Portfolio
Even if you are bullish on certain sectors, it’s still difficult to know which companies are going to do well within the sector. Nobody can predict the future, and even companies in the right industry can still perform badly when the entire industry grows. For example, in the mobile handset industry, big companies such as Nokia, Sony Ericssion and BlackBerry, which dominated in the 1990s and 2000s were left out in the smartphone industry boom in 2010s.
It’s important to know what you are investing in, but to also ensure that you have a diversified portfolio. Never put all your eggs into one basket, regardless of how confident you are of your investments.
To help investors get access to a diversified portfolio of companies within a sector that they want to invest in, dollarDEX, an online investment platform by Aviva, allows investors to invest in mutual funds and unit trusts across a range of industries and geographic regions. This allows you to choose the kind of investments you wish to make, while having professional fund managers help you select a broad base of companies that fit within your investment criteria.
Fund Finder, dollarDEX
Besides helping you to invest in the mutual funds of your choice, dollarDEX also has a retirement calculator that allows you to calculate how much you need to invest today, to accumulate the funds that you need in retire comfortably in the future.
Retirement Calculator, dollarDEX
If you are interested in investing in mutual funds but are unsure of how to get started, dollarDEX also offers a Recommended portfolio service where you can get a recommended portfolio based on your investor profile.
Investor profile, dollarDEX
Investing through dollarDEX comes with no sales charges, switching fees or platform fees. Whenever you invest, your money is invested fully. The only fee you pay is the usual annual management fee charged by the fund manager. As explained by dollarDEX, how it makes money to maintain its platform is by sharing the annual management fee from the fund manager.
If you are keen to start investing in some mutual funds today, you can open a dollarDEX account today online. If you want to learn more about how it’s like investing in mutual funds first, check out the articles on the dollarDEX website .