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5 actionable insights for private investors in 2021, according to the experts

By LLM Reporters on 11th November 2020

Covid-19 has been a wake-up call for businesses and investors alike. Few could imagine going into 2020 what a year it would turn out to be, with many private investors witnessing significant drops in the value of their portfolios.

But, as we approach the final weeks of 2020, confidence is bouncing back. One reason being newly released evidence of a successful vaccine, with Pfizer and BioNTech projecting up to 50 million doses could be produced before the end of the year. Suddenly, an end is in sight.

So, looking forward to 2021, what can investors expect from the market and the ‘new normal’? Ben Hobson, markets editor at Stockopedia offers some ideas about what we might expect.

1. A gradual end to the dividend drought

Dividends were decimated in 2020 as the Covid-19 crisis forced companies to shutter regular payouts and conserve cash due to economic uncertainty. Government and central bank support have also been a lifeline for many businesses but have made it hard for them to hand money to shareholders.

While dividend cuts and cancellations will continue to wash through, expect to see improved clarity from Q2 onwards. Full dividend reinstatements will be a theme, together with a longer tail of slow, steady, ratcheting up of payouts as companies become more confident in their recovery.

Covid-19 has been a wake-up call for businesses and investors alike

2. Uncertainty will make it a stock-picker’s market

We saw in 2020 that some stocks and sectors were able to prevail and even flourish despite, and even because of, the economic disruption and changes in consumer behaviour – on-demand entertainment, e-commerce and video conferencing to name just a few.

With the outlook for Covid-19 and the associated impact on the economy still uncertain in the short term, it remains the case that there will be big winners in the market. But careful selection will be needed to avoid backing the wrong stocks and sectors or those that have already reached their peak.

3. Macro factors could conspire to push stocks higher

2021 will see the back of some uncertain economic factors that nagged markets in 2020.

The US Presidency will be settled (perhaps not cleanly), a Brexit trade deal will either be done or ditched, and central bank stimulus and super-low interest rates look set to continue. Despite the ongoing COVID-19 disruption, a more benign global environment beckons, and that should be good news for investors.

We saw in 2020 that some stocks and sectors were able to prevail and even flourish despite, and even because of, the economic disruption and changes in consumer behaviour

4. Quality will be a watchword

After nearly a decade in which Growth and Momentum strategies dominated equity returns, Quality came into focus in 2020.

High quality companies have historically tended to outperform junk companies in the stock market on average. Of course, this is an open secret, and high-quality companies generally become bid up to higher valuations over time. The trick is to find high quality companies at bargain prices. 

The push for quality stocks in portfolios is likely to continue in 2021. Businesses with strong moats and solid balance sheets (particularly those on appealing valuations) are likely to find favour with investors looking to find the best performance and avoid the worst kinds of volatility that we saw in 2020.

joe biden
In the first few days of trading since Joe Biden was projected to become the 46th president, investors appear to be at ease with that result. Image credit: Divya777/Bigstock.com

5. Small caps come back into fashion

UK small-cap shares (with market caps below £500 million) have swung in and out of favour in recent years and they’ve developed a bit of a bad reputation in places. But there is currently an argument that, as a whole, this is an under-valued area of the market that could spring to life under more positive conditions.

Traditionally a sweet spot for private investors, small-caps demand careful research because they can be risky, but solid returns are on offer to those prepared to do their homework. After all, most successful large-cap companies started at one time as small businesses.

Disclaimer: Investing money carries risk, do so at your own risk and we advise people to never invest more money than they can afford to lose and to seek professional advice before doing so.