One year ago today, the stock market peaked and was hit by the coronavirus crash – which ended up being one of the fastest bear markets on record.
Equities across the globe tanked as investors weighed up the likely impact of Covid-19’s spread and the unprecedented lockdowns that were to follow. However, vast injections of liquidity from policymakers halted the rout and the market bottomed out on 23 March before embarking on a spectacular rally.
So 12 months after the start of the sell-off, Trustnet looks at the market from several different viewpoints to see how things panned out for investors.
By asset class
While the heavy falls that hit stock markets in February 2020 appeared to set investors up for a year of lacklustre returns, the rapid and massive response by monetary and fiscal policymakers meant they were soon rallying again.
As the chart below shows, global equities – represented here by the MSCI AC World index – have made a total return of just under 12 per cent in the year since the February peak. This includes the maximum drawdown of 24 per cent that was endured between 19 February and 23 March.
Performance of asset classes over 1yr
Source: FinXL
Of course, the coronavirus crash and following rally means that investors didn’t have the smoothest conditions to navigate over the past year and this is reflected in the performance of the VIX index, which is known as ‘Wall Street’s fear gauge’.
The chart also shows that safe havens, such as gold and government bonds, are relatively flat over the past year as the stimulus liquidity led investors to embrace risk.
However, coronavirus lockdowns across the much of the globe means that demand for commodities dried up last year and caused price falls, especially in oil.
By geography
While equities had a decent year on the global stage, things are a bit more nuanced when we look at some of the major regional indices.
Emerging markets and Japan were the strongest parts of the market, with the MSCI Emerging Markets index made a total return of more than 25 per cent.
China, the largest constituent of the emerging market index, came out of lockdown first and has staged a strong economic rebound since, while many parts of Asia appear to have initiated a better response to the pandemic than the West.
Performance of geographies over 1yr
Source: FinXL
The S&P 500 also rose by just under 10 per cent, despite a flawed response to the coronavirus pandemic and chaotic end to Donald Trump’s presidency. The US launched massive stimulus efforts, however, pumping trillions of dollars into the economy.
At the bottom of the rankings is the UK with the FTSE All Share, posting a 5.7 per cent loss over the past 12 months. The UK has been unloved for some time because of Brexit and, before the vaccine rollout, was criticised for its handling of the pandemic.
By investment style
The past year proved to be another when the growth style of investing had the firm upper hand in the growth versus value debate. The global growth equity index has made a total return of 24.5 per cent since 19 February while its value counterpart is in negative territory.
Performance of investment styles over 1yr
Source: FinXL
Growth investing has dominated the market for the past decade, after central banks dropped interest rates to record lows and launched huge quantitative easing programme to tackle the global financial crisis. These conditions favour growth stocks, as investors are more willing to pay for growth in a low interest rate, low inflation environment.
That said, value stocks – which tend to outperform when the economy is in a cyclical upswing – rallied when the first coronavirus vaccines were announced and many investors think they could outperform if a decent economic recovery takes hold this year.
By industry
The fact that growth stocks outperformed is reflected in the performance of the various MSCI industry sub-indices since 19 February, with consumer discretionary and tech stocks rising more than 30 per cent.
Although consumer discretionary made the highest returns over the past year, the focus has been on tech as many companies rallied strongly as locked-down populations used tech to work, shop and socialise from home.
Performance of industries over 1yr
Source: FinXL
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The wheels of the US tech stocks in particular have been greased by the liquidity washing around the financial markets thanks to the huge dose of quantitative easing released by central banks. The tech giants are still on an upwards trajectory, with expectations that our digital way of living will not unravel.
“However, the spectre of regulation is hanging over the sector and could prove to be the fright which could derail the juggernaut, especially if central banks take the monetary easing pedal off unexpectedly.’’
By market cap
As the chart below shows, global small-caps have outperformed their larger peers over the past 12 months with a total return of close to 19 per cent. Global large-caps, on the other hand, made a total return of less than 12 per cent.
Performance of market caps over 1yr
Source: FinXL
However, it’s important to note that this hasn’t been the picture over the full period. During February’s initial coronavirus crash, small-caps – which are seen as a riskier part of the stock market – fell harder than large-caps. They also recovered slower as investors continued to be nervous about the health of the global economy.
Small-caps surged past their larger rivals from the end of 2020, when several coronavirus vaccines were announced in November and investors started eyeing the end of the pandemic. They have continued to outperform in 2021 as vaccine roll-outs gather pace in many parts of the globe.
By fund sector
Many of the trends highlighted above are apparent when we examine the average performance of the various Investment Association fund sectors over the past year.
Performance of equity fund sectors over 1yr
Source: FinXL
As the chart above makes clear, the best performing geographic equity sector was IA China/Greater China, with its 51.72 per cent average return. The Chinese economy continued to grow in 2020 despite the country being the first to lock down because of coronavirus.
UK equities are at the bottom of the rankings, with the IA UK Equity Income sector being hit especially hard by the large numbers of companies that cut, postponed or cancelled their dividends last year.
Performance of bond fund sectors over 1yr
Source: FinXL
When it comes to fixed income, IA Sterling Strategic Bond funds handed the best returns to their investors thanks to their ability to shift between different kinds of bonds depending on the market backdrop.
High-yield bonds came in second place as investors felt confident taking risk in a market awash with liquidity, although emerging market debt funds have given investors the poorest result.
Performance of multi-asset & ‘other’ fund sectors over 1yr
Source: FinXL
Of the remaining Investment Association sectors, IA Technology & Telecommunications came out best with an average return of 42.2 per cent. As noted above, tech stocks have enjoyed a strong 12 months and this sector is home to the funds that specialise in them.
Property sits at the bottom, with both fund sectors making losses as lockdowns and working from home hit the commercial property space hard.