If a client spent 2020 on a desert island they would hopefully have come back at the New Year, looked at the figures below and be pleased with a nice ‘up’ year of performance. Maybe wondering if anything noteworthy occurred. If they were told all of it, would or even could they believe it?

They would surely think if that were true, how in the world is the portfolio higher? It has been an unbelievable year in so many ways!

It is maybe not overly useful to spend more time reviewing all that has passed. We have written copiously about everything 2020, in 2020.

So, let us instead put the focus on what is to come and key themes in 2021.

But first…

Year-end portfolio values

Portfolio Return (1 January – 31 December 2020)Benchmark Return (1 January – 31 December 2020)
Cautious Portfolio7.29%6.98%
Balanced Portfolio10.80%7.25%
Moderately Adventurous Portfolio14.18%8.58%
Adventurous Portfolio16.65%9.40%
Positive Impact Portfolio12.92%-10.68%

They are all decent when compared to benchmarks, but if we delve into how the performance was achieved, we can see wide variance in different regions.

 Return (1 January – 31 December 2020)
IA China/Greater China32.49%
IA North American Smaller Companies23.45%
IA Asia Pacific excluding Japan19.91%
IA European Smaller Companies18.10%
IA North America16.36%
IA Global14.83%
IA Japan13.91%
IA Global Emerging Markets13.55%
IA Europe excluding UK10.64%
IA UK Smaller Companies7.02%
IA Strategic Bond6.08%
IA Global Bonds5.90%
IA Standard Money Market0.46%
IA UK Direct Property-3.77%
IA UK All Companies-6.14%

Note: Please note that that past performance is no guide to future performance and value of investments can call as well as rise.

Top 5 performing funds

Return (1 January – 31 December 2020)
Scottish Mortgage110.49%
Baillie Gifford Global Discovery Fund76.80%
Matthews China Small Companies Fund72.22%
JPMorgan Japanese Investment Trust60.92%
ASI China A Fund49.03%

Note: Some of these funds were added to the portfolios on 1 July 2020. Please note that past performance is no guide to future performance and value of investments can fall as well as rise.

Themes for 2021

  • The 60-40 conundrum
  • Epicentre rebound, roaring 20’s
  • Feast in the East
  • Forever blowing bubbles
  • Seriously, we did that?!

The 60-40 conundrum

The investment industry, as its core strategy, recommends a blend of holdings split broadly 60% equities, 40% bonds. This has served investors well, the bond portion benefitting from decades of falling interest rates resulting in growth to capital values. But this strategy has surely reached its terminus. How can bonds continue to benefit in a zero-interest rate environment? They cannot!

So, the challenge for portfolio construction going forward is to create a bond-like element (40%) which diversifies risk, gives positive yield, and produces growth.

We think this means commercial and domestic property, infrastructure, ESG and alternatives will have tailwinds of investor demand, resulting in rising values.

Epicentre rebound, roaring 20’s

The ‘epicentre’ stocks are those caught squarely in the fallout from the pandemic; think travel, hotels, entertainment, sports, retail, industrial, airlines, banking, commodities etc. This pandemic-hobbled group’s values are lower by up to 50%.

The likelihood, however, for 2021, is that vaccines will free up movement and spending trends, heavily into what has been off limits.

The combined financial fire power of the money saved in 2020 (the US consumer has around $2 trillion saved because of the enforced spending freeze) and the huge amounts of central bank stimulus are going to combine with the animal spirits associated with the end of hostilities in wartime, to unleash a period of intense consumption. A ‘roaring 20’s’ which will benefit the ‘epicentre’ stocks with increasing earnings leading to higher share prices.

Feast in the East

It is unquestionable that the East has fared better than the West in 2020. This coupled with better economic fundamentals, lower prices for excellent stocks and vastly better demographics, makes it clear that investing in the region is highly attractive in 2021 and beyond.

Forever blowing bubbles

DoorDash issued its IPO in the US in December, it is a version of Just Eat or Deliveroo in the U.K.

The price pretty much doubled the first day and its stock valuation ended higher than Domino’s, KFC, Chipotle and Pizza Hut combined. Very silly and bubbly.

Tech has been on fire this year with valuations on many stocks going up triple digits, a bubble sector right!? A revisit of 1999 and sure to end in a bust like 2000. We think this is not so clear cut:

1) The pandemic has massively accelerated adoption. What would have taken 3-5 years took 3-5 months. So, tech companies in the right areas have gained enormous new customer intake and interaction and for many that is not going away.

It is easy to look at a Peloton or a DoorDash and say, look, once people can go back to the gym or out to a restaurant then demand falls, and that is plainly correct. However, that is not the same as Shopify, Teladoc, Ocado, Chegg (online digital and physical textbook service) or many other excellent companies where adoption has been swift to new ways that work better and stay just as attractively relevant ongoing.

2) The big-ticket investment topic of 2020 has been the huge outperformance of growth stocks and the horrible underperformance of value stocks. It is tough to define what a value stock is. Possibly easiest to say it is a well-run company with some, but not much growth, cheap on a P/E ratio compared to growth stocks. Lots of older investors weaned on Ben Graham and Warren Buffett value investing principles could never make any sense out of an Amazon, Tesla or Nvidia valuation multiples in the 100’s. Unilever or Procter & Gamble selling soap and detergents with everything being predictable is their preferred wheelhouse. This leads us back to just how stupid is the valuation of DoorDash.

What some investors have worked out is the valuation of an Amazon, Shopify, Facebook, or Tesla early in their development was obviously super expensive.

But: if a company grows at 30% pa then profits increase over 10 years by a factor of 19, and if at 40% pa then by 54 times earnings.

Unilever growing at 5% pa, will grow profits over 10 years by 0.81 times.

So, the conclusion is that for some companies, the ones that fully actualise early promise or who morph like Amazon from an internet bookstore to global supplier for everything, then you can pay a stupid multiple, a crazy initial price but they are worth it.

The key proviso though, is investing before it actualises and paying a price that assumes it will, means big losses in the ones that do not.

Seriously, we did that?!

The creation of a vaccine for COVID, effective in 95%+ of the population, from inception to distribution in less than a year, is a mind-bendingly amazing achievement. Messenger RNA technology, previously only a theoretic application, is an extraordinary new delivery system. The achievement of Pfizer and Moderna will become legend, the medical equivalent of the moon landing.

We have been reading for years about the oncoming biotechnology ‘gold rush’ of new treatments enabled by genome sequencing, AI, and computing power. It arrived in 2020 as the cavalry, to rescue a desperate situation and the world in a single moment took a step forward. The biotech revolution for medical treatments is going to power on and small companies with innovative treatment solutions are going to become big ones rapidly.

And finally

What 2020 illustrated again is the impossibility of timing markets. The actions and reactions of events and asset prices are often so contra intuitive. Obviously 2020 has been a lesson in ‘don’t sell when markets fall’, but the figures below show that even if you bought in at a cyclical peak, just before one of the major corrections, you would still have excellent longer-term results.

Note: These are the returns for the S&P 500.

The results would be super stellar if you had bought after the big falls. The table below demonstrates this, with the portfolios showing the returns from the lowest point this year:

 19th March – 31st December 2020
Cautious Portfolio43.81%
Balanced Portfolio51.99%
Moderately Adventurous Portfolio60.56%
Adventurous Portfolio64.67%
Positive Impact Portfolio41.55%

Note: Please note that that past performance is no guide to future performance and value of investments can call as well as rise.


Just a big, big thank you to everyone, it was tough going but we had nothing but positive interactions and that made a difficult time so much easier. George and Nic were magnificent in 2020. But it never stops, and we are fully focused on 2021.

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog, and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.