With 2020 coming to a close, let’s take a look back at what happened in the market, by major industry. We’ll look at the losers, winners, and disruptors. At the time of writing this article, the S&P 500 has gained 17.72% in 2020. This is our benchmark for under/outperforming.
Energy
The energy industry is a tail of two subindustries. The traditional oil and natural resources, and the new age flashy renewable energy market. As you can expect, the renewable energy market crushed the traditional market. A fund that tracks the traditional energy market has returned -33%, ouch, but the renewable energy ETF has gained 136%.
Under the Biden administration and the push towards renewable energy, even with their runup, it could be a good idea to move your energy portfolio into companies like NextEra Energy or Brookfield Renewable. In 2020, renewable energy is now a bigger market than traditional energy, there is no sign of this trend slowing down.
Consumer Cyclical
As no one could have predicted during a recession and pandemic, consumer discretionary purchases have continued to increase. An ETF that tracks discretionary purchases through investments in Amazon, Tesla, Home Depot, Nike, McDonald’s, etc has crushed the market this year. The fund with the ticker $VCR has returned 47.5% this year.
Most of these returns are from eCommerce or tech consumer cyclical companies. Amazon is the fund’s largest return and they have returned 80% YTD, but Tesla has skewed the results immensely with their near 700% return.
Using an equal-weight ETF that has more brick and motor exposure, gives a more realistic view of consumer cyclical companies. This ETF has returned 10%. Still a pretty incredible return with the circumstances of 2020.
Who are the biggest winners? Digital adaptive companies. Amazon, Home Depot, Chiptole, and Nike have all built out phenomenal online presences helping bear the burden. Look for these companies to keep their market share and extrapolate returns as the economy comes back.
Financial
Just like everything we have outlined, this is another tale of two stories. Traditional banks are getting killed in the low-interest-rate environment. While fintech and payment companies thriving in this environment.
The best of these companies by far have been Square (242% return) and PayPal (115% return). All major banks have slumped and performed handily worse than the market. With the Federal Reserve continuing their policy to maintain low-interest rates, we do not anticipate banks to outperform the benchmark in 2021.
It only costs Square $20 to acquire a customer on their platform but it costs a traditional bank $200. We’ll choose Square every time.
Health Care
At the very epicenter of the pandemic, we have health care. There is so much more to this industry than the headlines of “Covid Vaccine”. This wide, diverse, and cutting-edge industry has so much to like.
Firstly, we have biotech which is where most of the vaccine headlines are coming from and we know how those companies have performed in 2020.
Health Care has boomed in 2020. Whether that be Teledoc or Intuitive Surgical there is technology to help create vaccines, cancer cures, improve surgeries, or apps to help patients get better treatment. The companies on the cutting edge of these technologies producing new innovative products will perform very well for years to come.
Technology
Technology is hands down the biggest winner. There are too many disruptors and winners to discuss here. If you picked just about any of the companies in this industry at almost any point in the year, you would be very happy. But will they keep winning?
This question is really hard to say no to. Similar to what saw in the first half of 2020 – it looks as though the mega-caps (Amazon, Apple, Microsoft, etc) are going to continue to gain investors’ confidence. These massive +$1 Trillion companies are lower risk high growth investments in a period of uncertainty. With the vaccine rollout, we will see “true” growth in the US economy, and these companies are a safe bet in either direction the growth goes.
A Few of Our Favorite Names for 2021:
OpenDoor - Residential Real Estate Disruptor, Massive TAM, Early Stages Growth
Activision - Long-Awaited New Titles Being Released in 2021
Sea Limited - Newest Chinese Conglomerate. eCommerce, Gaming & Digital Payments
Mercado Libre - South American eCommerce & Digital Payments
Visa - War on Cash, Need I Say More?
American Tower - 5G Rollout
ServiceNow - Wide Moat, SaaS IT Services