Month in Review
Following on the highly eventful year for markets that was 2020, a year that culminated in a highly contentious US election and a far from smooth handover of power, many expected 2021 to be a bit calmer. So far that has not been the case. Apart from the ebb and flow of optimism around the Covid vaccines, we have seen extreme volatility in Bitcoin prices, a sharp spike in silver prices and a number of US hedge funds suffer massive losses on short positions in a struggling retailer called GameStop. All these events had one thing in common, namely they were driven by armies of small retail investors coordinating their purchases on low cost investment platforms. GameStop was trading at less than $20 per share at the start of the year but was driven all the way to $350 per share before crashing back down. So far, the evidence would suggest that while a small number of investors profited very handsomely from these trades, the vast majority are nursing losses.
The Gamestop Rollercoaster in January
Markets
Equity markets have trended positive since the beginning of the year, albeit not markedly. The UK stands out among the major regions as still being some 14% behind where it was a year ago. Leading the field are China and Japan, both of which are ahead of where they were at the beginning of 2020 in strong double digits and which are both seen to be ahead of the Covid curve in global terms.
| Market* | Perf. Jan 2021* | Perf. 1 Year* |
| Ireland | -4.4% | +2.2% |
| UK | +0.4% | -13.7% |
| Japan | +0.6% | +12.6% |
| Europe | -1.1% | +1.9% |
| US | -0.3% | +6.4% |
| China | +6.8% | +19.2% |
*Source: Financial Times, Financial Express
Investment Outlook
Whatever about the rights and wrongs of the GameStop and related episodes in January, they do indicate to us a level of irrationality present in some market pockets which underpins our case that equity investors are well advised to tread cautiously going into 2021. There is little doubt that valuations in some areas of the stock market look very stretched and that these excessive ratings could be a cause of market volatility during the course of this year. However, it is not accurate to say that all companies, or even most companies, are currently overvalued. We continue to believe that there is value to be had in equities so while our short-term stance is somewhat cautious, we are positive on equities over the medium to long term. That said because of the disconnect between some valuations and economic realities, we believe that strong active managers will have opportunities to outperform over the next couple of years. For that reason, we have added several such funds to our Recommended List in recent months. We cover one such fund, the 2X Midcap Library Fund, in this update. Elsewhere, matters are not improving for cash depositors as more financial institutions signal the introduction of negative rates for all depositors. While all of us need to keep a certain amount of cash on deposit, we would encourage all our clients to seek out income paying opportunities as a replacement for a part of their liquid deposits.
Fund in Focus for February 2021
Our Fund in Focus for February 2021 is 2X Midcap Library Fund – see more details here.
If you have any queries in relation to the above, please contact Harvest on 01 2375500 or email justask@harvestfinancial.ie.