Which asset class surprised most in 2020?

Chris Salih 02/11/20 in Strategy

2020 has been a year full of surprises and the world has changed rapidly in ways that we couldn’t previously have imagined. Keeping track of stock markets and investments during this time has been just as interesting and, at times, scary.

So, as we head towards the end of the year, we asked six multi-asset managers: which asset class surprised or excited you the most in 2020? From property to gold, UK equities to infrastructure and song rights, here‘s what they had to say:

Alastair Irvine, co-manager, Jupiter Merlin Balanced

“2020 has been a year full of surprises, by definition none of them forecastable. As the popular internet meme goes “whoever said one person cannot change the world never ate an undercooked bat”! If stock market performance over the past few years was already dominated by differing opinions about growth and value investing, after the precipitous falls in equity prices in February/March Covid significantly exacerbated the subsequent bifurcation of performance between the perceived Covid winners (principally technology and related companies) and everything else. Bonds too provided excitement as investors opted to shoot first and ask questions later, taking flight to the relative safety of sovereign bonds as a Chinese health scare rapidly morphed into global pandemic.

“But for the Jupiter Merlin Portfolios, gold was the asset class of choice: virtually unique, neither bond nor equity, not a currency nor a base commodity, to us it offers a long-term store of value, particularly in turbulent, uncertain times. The surprise was the gold mining sector: the extent to which it was hit hard in the market collapse when energy costs were tumbling, yet the price of gold was rapidly appreciating as demand accelerated, seemed perverse. The subsequent strong rally was most pleasing, surprising or otherwise!”

Neil Birrell, manager, Premier Diversified Growth

“It is difficult to think of an asset class that has not surprised during 2020. There were times when long dated US Treasuries were collapsing as far and as fast as the S&P 500, the oil price futures traded well into negative territory, gold has gone to levels never seen before and equity market volatility hit all-time highs. Inevitably, in periods of extreme stress, correlations headed towards 1 [asset classes moved in the same direction], as they usually do when panic sets in and investors crave or need cash.

“However, there have been examples of negative correlation as well. The dispersion of equity market returns has surprised me the most. The reasons why big technology companies have performed well, and UK equities have not, are understandable, but the scale of the differential is less easy to fathom. All year, at different times, there has been much to worry about or a lot to get excited about; in equity markets at the moment, it is both at the same time.”

Will McIntosh-Whyte, co-manager, Rathbone Strategic Growth Portfolio

“Property has been exciting – we just don’t know how exciting, as most funds remain suspended. We will find out soon. This year has served as another reminder that property remains a pro-cyclical asset class and not a risk dampener in stressed markets. Property funds having to suspend is not a glitch, but a natural feature of the product design, given the inherent liquidity mismatch between the underlying assets and the daily dealing structure. The disconnect between the price action seen in the REITs market [real estate investment trusts] and the open-ended funds, raises questions over whether valuations are conservative enough. As these funds reopen and we potentially start to see redemptions pick up, we may begin to see some of the reality hit, as properties may need to be sold quickly.

“If open ended funds move to less frequent dealing as a result of the FCA review, this could have significant implications for daily dealing funds with meaningful property exposure. So, a potential boon for the REIT market should demand move to this more liquid structure, albeit investors would have to accept the inherent volatility that comes with this.”

Find out more about property fund suspensions in this video interview:

Jason Borbora-Sheen, co-manager, Ninety One Cautious Managed

“Gold has received a lot of attention this year, as investors sought the safe-haven asset following the economic fallout of the pandemic. Gold prices broke all-time record highs in August reaching a surprising $2,050/oz. However, silver has also had a memorable year with its gain almost double that of gold.

“Having suffered an immediate pull back as the coronavirus went global, the subsequent rise has come off the back of a continually weakening US dollar, plunging real rates, and geopolitical tensions – all of which have given investors motivation to seek haven in precious metals. The scale of the upswing in precious metal prices has been excessive and, as a result, prompted significant profit taking by investors during August; however, the long-term outlook remains constructive and prices supported.”

Matthew Stanesby, co-manager, Close Managed Income

“Whilst not strictly an asset class, the area that we have been adding to is the alternatives – that is anything that does not fit into the traditional asset classes of equities, bonds or cash. Low government bond yields can limit their use as a portfolio diversifier, so we have been searching for different ways to fulfil that role.

“One area of success for us has been our investment in the Hipgnosis Song Fund which buys songwriters catalogues and then collects the royalties and pays this out as income. This income stream is completely uncorrelated to market movements – we listen to music when we are happy (markets going up) and when we are sad (markets going down). They focus on songs that stand the test of time and therefore pay a predictable income that is protected by law until 70 years after the death of the artist.”

Mark Wright, co-manager, VT Seneca Diversified Income

“The last few months in markets have certainly been different (and that’s very much an understatement!). The asset class which perhaps surprised the most was in our wide range of alternative assets, the prices of which we felt behaved illogically in the market falls, driven by panic selling and a grabbing for liquidity by investors. Even infrastructure assets fell sharply, albeit very briefly, despite providing investors with a stable, asset backed, inflation linked, subsidised income stream. We were able to add to these holdings which subsequently recovered very quickly.

“The UK mid-cap space remains one of the most exciting areas, with valuations having been driven down by a concoction of Brexit uncertainty and the pandemic. We have been able to take new positions in companies such as Diversified Gas & Oil and M&G at double digit dividend yields. The former has already increased its dividend since the start of the pandemic, whilst the latter has continued to pay its dividend as its balance sheet has proved to be resilient.”

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