What should be at the heart of UK investors’ 2021 portfolios?
4 January 2021
What really needs to sit at the heart of a UK investors portfolio in 2021? The Fund Calibre team shows how sectors can fall in and out of favour.
If you’d asked that question 20 years ago, most would point to UK equity income funds given that re-invested dividends are the main contributor to long-term returns.
Today is not so clear, with technology (not least the FAANGMs), driving global growth.
The first chart below shows the stellar returns from the IA Technology and Telecoms sector in the past five years (183.6%) compared to sluggish UK Equity Income returns (13.12%).
The second chart shows performance of both sectors in the five years post the dotcom bubble – and is a reminder that the value of these investments can go down as well as up.
So is now the time to get out of tech? We don’t think so as the trends are markedly different to 2000.
Many tech companies are expensive but they’re also trading extremely well. When we talk to managers the biggest trend driving technology is cloud computing – this still has a long-way to run as tech businesses continue to embed this into hardware, software and sales.
By contrast, there have been reasons why UK equity income funds have struggled, not least that many companies have been bullied by their investor base into over-paying on dividends, rather than re-investing for growth – the exact opposite to technology companies.
Hopefully the idea of a great reset in UK equity income will give us the golden ticket: a strong list of UK equity income funds with access to cheap, unloved companies, complimented by the continued growth in tech.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The Fund Calibre team’s views are their own and do not constitute financial advice.
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