Market Musings BONUS 24/01/21: Long-term Trends for 2021

24th Jan '21 by Edmund Shing

8 comments 1647 reads

Long-term Trends for 2021

Summary:

Focus on either Momentum trends which are well-established, and which have strong structural drivers; or
Contrarian reversals of long-existing bearish trends, which have now turned bullish and which have plenty of upside potential.
A word of warning: Momentum trends are always at risk of suffering should equity markets correct, so require relatively high risk tolerance.
Momentum trends include subsectors of Tech, Biotech/Medical Diagnostics, Clean Energy
Contrarian reversal of bear trends include: Commodities, notably Base Metals, Precious Metals, Agricultural
UK Stocks are also a contrarian call on a global context:I prefer Small-Cap and AIM exposure for exposure to the expected UK domestic recovery

What long-term trends can investors focus on this year?

Here we're going to look at some long term trends that could work well in terms of investment themes for 2021. There are two selections I've tried to make here:

Firstly, those trends that have really worked well in 2020 that I believe could work well. Again, in 2021, in a continuing momentum fashion.
Secondly, I'm looking at significant changes of trends, from downtrends in the long term to long term bear markets that are now turning into bull markets. As of the last few months. The idea here is to be more contrarian in terms of theme selection.

Momentum Trends: Tech, Biotech/Diagnostics, Clean Energy

So to continue looking firstly at momentum trends, clearly, momentum has been strong in a number of sectors, namely technology, biotech/health care diagnostics, and clean energy. So these are the three sectors that I concentrated on, for momentum, ideas for 2021.

Favoured technology subsectors

If we first take technology, I am less convinced that mega cap tech in the US will continue to perform as well as it has in 2020.Having said that, there are certain areas of technology and related to technology that I think will continue to perform well.

These include:

artificial intelligence,
video games,
cyber security, and
semiconductors.

These are the secular themes that I believe will continue to work well, and which continue to have strong momentum even into January of this year.

Tech subsectors I like for 2021

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Source: tradingview.com

The ETFs one can look at for these themes include:

AI (yellow line): £AIAG https://fundcentres.lgim.com/uk/professional/fund-centre/ETF/Artificial-Intelligence
Video games (orange): £ESGB https://www.vaneck.com/uk/en/etf/equity/espo/overview?country=uk&audience=retail
Cyber security (dark blue): £ISPY https://fundcentres.lgim.com/uk/professional/fund-centre/ETF/Cyber-Security
Semiconductors (cyan): US-listed ETF only SMH https://www.vaneck.com/etf/equity/smh/overview/?country=us&audience=retail

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William K

24th Jan '21

Many thanks, Edmund, for the extra post. For those of us who are top-down investors, with a predilection for the US and World markets, your observations are invaluable. These are exciting times with US inflation likely to rise whilst interest rates stay close to zero. There is nowhere else for investors to go apart from equities, commodities and cryptocurrencies. Having already invested in cyber security (through HACK) and semi-conductors (through SMH), I'm now looking at Agriculture via DBA. My inclination is to chase commodities via Anglo American (LON:AAL), Rio Tinto (LON:RIO), COPX and BRWM. Many thanks again.

jwebster

25th Jan '21

Some interesting macros themes here. Thanks for listing out the ETFs for review, appreciate that.

I previously was a uranium bull but have since reverted. The bull case for URA is China building 200 new reactors, which they may well do. However, the pace of price reduction in solar is impressive. I'm not sure the economics of nuclear expensive reactors will stack up over 30 years, given the pace of change in solar.

For example, where I live I have solar panels on the roof. During the day, they generate more power than I can possibly use. In the evening, of course nil. However, there is a plug-on battery option for the inverter. Right now the cost-benefit equation is not there yet, but in a few years it will be. At that point, in a sunny locale, my home will generate enough solar power for all needs 24 hours, charge an EV and some surplus to return to the grid.

So there is an interesting inflexion point coming up, for countries with high sunshine levels at least.

Rusty2

Most solar systems only produce around 3-4kw per day in the U.K. which is maybe just enough power if you gas.

jonno

Good morning Edmund

A great article as usual. Regarding exposure to UK small and mid caps, most of my portfolio is comprised of such stocks, however I have been looking at ways to increase such exposure in the portfolios I run for my wife and daughter. I considered the Throgmorton Trust and while its performance has been very good, including the use of CFD's to short or add to long positions, its fees are extremely high compared to other trusts/funds. According to figures from Hargreaves Lansdown £5000 invested in Throgmorton over 5 years gives rise to fees of £749 versus £543 for JP Morgan Smaller UK Companies and £400 for Premier Miton UK Smaller Companies. the latter is a fund as opposed to an investment trust. These figures include Hargreaves own charges.

Admittedly the performances of the latter have not matched Throgmorton over 5 years, however they are still very respectable. Both Premier Miton and JP Morgan have outperformed Throgmorton over the last year, the former significantly so. Added to which Throgmorton trades at a small premium to NAV versus a discount of 3% or so for JP Morgan. So in the end I opted for JP Morgan and Premier.

We shall see how this decision pans out, but ultimately it was the fees, including performance fee that steered me away from Throgmorton. My view is that fund managers are well remunerated and shouldn't need to be incentivised by a performance fee.

Best wishes

pka

Jonno wrote:

"My view is that fund managers are well remunerated and shouldn't need to be incentivised by a performance fee."

I strongly agree! Performance fees encourage fund managers to increase the riskiness of their portfolios, because they mean "heads the fund manager wins, tails he doesn't lose".

Another excellent article, Edmund.

An investment trust you didn't mention in this article which is showing good recent share price momentum and invests in "a worldwide portfolio of mining and metal securities" is Blackrock World Mining. It is currently on a discount of about 2% to its Net Asset Value, although that has been considerably bigger in recent years:

https://www.theaic.co.uk/companydata/0P00008ZOQ/performance

Zipmanpeter

29th Jan '21

Absolutely agree re solar+battery but you also need to add wind. When you consider both domestic installations (leading to much reduced domestic pull from grid even with EVs) and commercial installations (using onsite and grid scale power), over the next 10 years the case for hugely expensive, capital upfront nuclear plants is going to evaporate and with it demand for uranium. These power generation models are falling on a rapid and likely long term downward price curve.

There may be a brief period when Uranium supply is short as existing/under construction plants meet a complete lack of investment in new mines. But starting construction of a $20Bn nuclear plant in 10 years is going be stupid economically and politically difficult even in China/India etc.

Renewables/electrification is the 30 yr winner

RidetheWave111

30th Jan '21

Thanks Edmund. Top notch as always. I would've thought a company like Sylvania Platinum (LON:SLP) would be quite appealing too, despite the recent bull run of 2020. I know you were a big fan previously - has anything changed since their update on Friday or do you continue to hold/believe the investment case?

Thanks

RTW

Market Musings BONUS 24/01/21: Long-term Trends for 2021

Long-term Trends for 2021

Summary:

What long-term trends can investors focus on this year?

Momentum Trends: Tech, Biotech/Diagnostics, Clean Energy

Favoured technology subsectors

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About the Author

Edmund Shing

8 comments

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