By Gavin Gibbon
Stocks, bonds and gold posted positive returns last year, according to experts polled by Arabian Business
Armed with $10,000 to invest, where would you put your money to make the best return this year?
2019 was a year shrouded in volatility and geopolitical risks that saw investors take a cautious approach to get the best returns early on in the calendar.
However, as the geopolitical risks failed to materialise and central banks adopted a supportive approach in their monetary policy, it transpired that a portfolio with higher equity allocations best captured the market returns on offer.
With an expected long-term, low interest rate environment and accommodative monetary policy, it is reasonable to favour riskier asset classes, equities in particular, in the year ahead.
Arabian Business has gathered a group of experts to find out what went right in 2019 and where they would invest their cash in 2020.
What have been the best performing investments in 2019?
There were strong returns across most asset classes throughout 2019. In fact, there were no negative returns from any of the major asset classes. Global equities grew around 20 percent, with US equities in particular standing out, with an S&P rally of nearly 30 percent.
Emerging market equities were positive but lagged a little behind the global equity market. Fixed income, while not as favourable as equities, were also steady in growth.
Government bonds were the lowest returning asset class, but still positive in terms of returns.
Due to the increased level of uncertainty throughout 2019, investors across the globe sought ‘safety’ from the volatility displayed by global equity markets. As a result, 2019 saw the price of gold rise from $1,278 to $1,519 per ounce, representing a return of 18.87 percent for the year.
The performance of gold in 2019 is even more unusual considering that traditional economic theory states that the returns generated from gold and equities should be negatively correlated.
2019 was a very good year for investors with stocks, bonds and gold posting positive returns such that our different investment allocations generated double-digit returns.
Last year we had a lot of success with businesses in the fintech, medtech and hospitality sectors.
WTI Crude rallied by 34.1 percent, SPX 500 by 31.5 percent, gold by 17.4 percent and US government bonds on average rose by 8.7 percent in 2019. S&P 500's information technology was the best performer in 2019 and it had the best performance since 2009.
The best performing SPX 500 stock was AMD which rallied by 150 percent, while Apple rallied by more than 80 percent for the year. Facebook moved higher by 59 percent, Amazon 24 percent, Netflix 23 percent and Alphabet by 30 percent in 2019. Prominent EV manufacturer Tesla also had a good year with its shares rallying by 25 percent for the year.
Emerging Markets rallied by 18 percent and European indices, which on an average rallied by 22 percent. Canadian stocks also performed well with a gain of 21 percent in 2019.
If you had $10,000 where would you invest in 2020?
In emerging market equities, Asia is a potential stand out based on relative underperformance in the previous 12 months and makes a compelling valuation discount. India also looks positive thanks to the unexpected corporate income tax cuts and ongoing implementation of its reform agenda to upgrade infrastructure, raise productivity and improve governance. UK equities may also be valued attractively, with ongoing concerns over Britain’s exit from the European Union.
With low interest rates across developed markets the search for yield should benefit property markets – listed property yields are over 125bps higher than global equity dividend yields. We favour listed over physical property in most markets.
The year ahead has, again, a backdrop of geopolitical risks, in particular the US-China trade tensions and the Middle East, so as ever we advocate a well-diversified portfolio to mitigate volatility as much as possible. Commodities, such as gold, could also be considered in this vein as they add natural balance to a portfolio.
A slowing economy and a likely end to global political tension is likely to result in the dollar weakening, which in-turn will also have a positive impact on technology firms that derive a significant proportion of their revenue from overseas earnings.
An investment opportunity also exists within UK small-caps. Throughout 2019, political uncertainty created by Brexit, led investors to favour UK-Listed stocks with global revenue streams over those with domestically-sourced revenues, leading to a significant disparity in valuations. As a significant proportion of UK small-cap companies are domestically-focused, we feel that an opportunity exists to invest in, dynamic, growth-focused companies, at an attractive valuation. This opportunity is highlighted by the significant M&A activity that has occurred in 2019 within the UK small-cap sector.
Our preferred equity markets are the Euro area, where believe people have become far too pessimistic regarding growth and on the banks, and the US where share buybacks are expected to support the market and more than offset fund outflows.
Within bonds, we over overweight Emerging Market bonds generally, given the relatively attractive yields on offer, our view that EM growth (outside of China) is likely to accelerate and that the US dollar is likely to weaken, supporting inflows into EM assets in general.
Finally, as we see geopolitical risks remaining elevated on a multi-year basis, we would look for opportunities to add to gold exposures (to an exposure of around 5-10 percent) as a hedge against our overweight allocation to equities.
I think 2020 could be a big year for renewables and greentech businesses now that people have become so much more environmentally conscious. Recently we've also seen a rise in smart city and home automation opportunities, as IoT continues to become more widespread.
One of the most successful investors in the world, Warren Buffet, has embraced E-commerce as an investment idea and this should not be a surprise. Warren Buffet’s Berkshire Hathway has invested into E-commerce powerhouse Amazon in 2019 and this is indeed an eye opener for value investors. For all its size, Amazon accounts only for a miniscule 1.2% of the global retail sales and the potential for growth is humongous.
Canada’s renowned investor Prem Watsa's firm Fairfax Financial is bullish on India and is increasing his positions through Fairfax India Holdings Corporation. Structural reforms like lowering of corporate taxes as well as Central bank easing cycle should help Indian indices to post strong performance. iShares MSCI India ETF (INDA) is an ideal way to play the India based investment theme.
While Chase Coleman’s Tiger Global Management is betting big on Chinese giant Alibaba. The Chinese entity has ambitious plans and is looking to serve more than one billion Chinese consumers per year by channeling more than $10 trillion Yuan of consumption. For fiscal 2020, Alibaba is likely to show a 36 percent rise in revenue.