Some sectors and assets did much better than others last year, which provide lessons for all investors.
Despite the significant political risks and fears of global economic slowdown, 2019 was a great year for Developed Market equities, returning 23%, making it the second top performing asset class.
Whilst it was a turbulent year for UK property funds, Property more broadly was the third best performing asset in 2019, returning 18%.
But whilst it might be one of the most volatile assets around, bitcoin came top of the class last year, ahead of Developed Market equities, returning 79% for the year.
However, bitcoin suffered a reversal of fortune in the last quarter of 2019, slipping to the bottom of the table with a -19% return, such is the volatility of the price of bitcoin. That said, in the rollercoaster ride that is Bitcoin, the price has spiked this month amidst geopolitical tensions.
It is a similar story over a five-year period, with Bitcoin the best performing asset, delivering an annualised return of 100%, ahead of Developed Market equities (12%) and Property (10%).
Gary McFarlane, Crypto Currency Analyst, interactive investor says: “Bitcoin price predictions can be a fool’s errand and there are no certainties. Nevertheless, far from dying a spectacular burn-out as its many detractors expected, a major technical consideration could give a further boost this year (although busts are seldom far behind when it comes to Bitcoin).
“The reward that miners receive for doing the bookkeeping on the bitcoin blockchain will be halved in May 2020, a mechanism that kicks in every four years. Constraining supply in this way could lead to price appreciation.
“Add to those technical considerations is Bitcoin’s allure as a ‘digital gold’ safe haven, as seen in the recent spike in price following US/ Iran tensions geopolitical uncertainty and the continuing absence of a full-blown recovery in the global economy should also help to bolster the value of the digital currency.”
FAANG (Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet's Alphabet (NASDAQ:GOOGL)) stocks propelled Information Technology as the best performing sector, according to analysis by interactive investor. Information Technology stocks returned 42% over 2019, ahead of Industrials in second and Communication Services in third, returning 23% and 22% respectively.
When it comes to investment sectors over five years, Information Technology came top of the class, boasting annualised returns of 22% over the same period, with Consumer Discretionary in second (14%) and Industrials in third (12%).
Meanwhile, UK Real Estate Investment Trusts (REITS) fared better, returning 31% over the year to 31 December 2019 - the best performer in the Alternatives category, followed by Global Infrastructure (22%).
Within the Fixed Income space, Global Corporate bonds delivered 7% in 2019 against just under 2% for Global Government bonds. Sterling Corporate returned the most with 9.47%. UK Gilts returned just under 7%.
Teodor Dilov, Fund Analyst, interactive investor, says: “While the US-China trade war tensions drove volatility throughout last year, with plenty of speculation about reaching a deal which failed to materialise, Developed Market equities delivered solid performance. Growth stocks continued to outperform value with valuations looking high relative to historical data. In the UK, the outcome of the general election gave investors some relief as the risk of nationalisation is gone, but the biggest challenge of ‘getting Brexit done’ still weighs on the British economy.
“Information Technology continued to be the best performing sector in 2019 – largely driven by FAANG stocks. Valuations in this sector reached historic levels which put many investors in the ‘cautious camp’. In terms of sector dynamics, there was no strong pattern of defensive stocks outperforming the more economically sensitive ones. This might come as a bit of a surprise considering that the economic cycle is maturing.
“In the fixed income space, the yield curve inversion in March, which theoretically raises concerns for recession, failed to scare the markets. In addition, amid escalating trade tensions and the introduction of tariffs, Central banks were left with no choice but to continue ease their monetary policies and supply the markets with liquidity. Low bond yields continued to force income investors to consider riskier asset classes.
“The moral of the story for investors is to diversify their portfolio across different assets classes, sectors and geographies to reduce investment risk.”
Myron Jobson, Personal Finance Campaigner, interactive investor, says: “Bitcoin is a relative newcomer in the investment space having launched by the mysterious ‘Satoshi Nakamoto’ (a pseudonym) in 2009, and presents somewhat of a conundrum for investors.
“Unlike conventional investments in stocks where there are a number of metrics, like price to earnings ratio, you can use to help you determine whether a stock is a winner or a dud, valuating bitcoin and other cryptocurrencies doesn't work in the same way. Looking at factors like the number of transactions in a day, and the cost of mining the coin could give you an idea of what they're worth, but they can be difficult to get your head around.
“The annualised and cumulative performance of Bitcoin may flatter the cryptocurrency, but it only offers a snapshot of an investment’s performance and does not provide an insight into volatility. Investors of the cryptocurrency should brace for a bumpy ride as the coin continues to cut its teeth as it attempts to gain greater credibility in the mainstream investment industry.”
Annualised performance of the asset classes over the past five years. Source: interactive investor using Morningstar, as at 31 December 2019. The value of your investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is no guide to future performance.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.