Investment thoughts on a year like no other

Richard Dunbar

In a year like no other, Richard Dunbar, Head of Multi-Asset Research at Aberdeen Standard Investments, has helped us navigate the uncertainty and understand what it may mean for economies, markets and our investments. As 2020 comes to a close, we ask Richard about the most startling investment moments, key lessons learned and reasons for optimism.


From an investment perspective, what are the standout moments of 2020?

It’s obvious that Covid has dominated economies, markets and societies this year. And so with Covid as the catalyst, what have been the most interesting implications? Out of the many, I would pick three.

Firstly, we saw a bull market (share prices rising) and a bear market (share prices falling) in the space of a few weeks. And perhaps surprisingly, both were entirely rational. The collapse in markets in March was a reasoned response to a global economy that had almost completely ground to a halt. The survival of many businesses and sectors was immediately called into question. Even the financially strong saw huge downgrades to their earnings prospects. 

But the rise in markets in response to unprecedented government and financial support was also rational. Governments sought to protect workers and businesses with packages such as the furlough scheme. Meanwhile central banks continued to cut interest rates and kept money flowing through the financial system. Quite a roller-coaster!

The collapsing oil price was the second standout. It was no surprise as the travel industry and a lot of company distribution came to a standstill, adding to other problems suppressing the oil industry. However, what was perhaps a little more surprising to some owners of oil was that the price didn’t stop at zero. Plummeting demand, too much oil supply and not enough places to store it meant that owners of oil found out, to their cost, that they had to pay buyers to take it from them. It was a rude awakening for many.

And thirdly, I answer these questions in the week that the vaccine starts to get rolled out in the UK. So my last ‘interesting implication’ of the year is the reminder, if any were needed, of the flexibility, ingenuity and solidarity of the human race. We’ve been tested this year. But we’ve worked together to get through a terrible situation and our scientists have come up with a vaccine in record time. As Ian Dury sang all those years ago, ‘Reasons to be Cheerful…’

What are the key lessons for investors?

There are a few key lessons from this year. Firstly, companies and individuals are innovative. Economists and investors sometimes underestimate this. We’ve seen sit-in restaurants become takeaways, taxi drivers become Amazon drivers, and those in work continue to spend – albeit almost exclusively online. It’s meant that economies and company results have in aggregate been a little better than originally feared (although still reflecting a huge shock). 

The power of central banks was another lesson. The measures that central banks took in March to support economies cleared the blocked pipes of the financial plumbing, and its continuation has fuelled the rise in markets since.

Finally, we return to the crucial importance of  diversification, of investing in a mix of different types of investments, across different industries and geographical areas. In (another) roller-coaster year, it would have been difficult to sell and buy at the right times. A diversified portfolio, and taking a long-term view, has allowed many investors to navigate a year like no other.

What’s the top challenge for investors going into 2021?

It’s right that we should look to the broader roll-out of the vaccine in the year ahead. This will hopefully solve many of the problems that I’ve had to write about over the past year. However, we still have a difficult winter to get through. With significant lockdowns in the UK, Europe and the US, the economic news may get worse before it gets better.

Is there reason for optimism?

There’s always reason for optimism! We have a vaccine in the early stages of a roll-out. We have a more settled and predictable White House overseeing the largest and most important economy in the world.  And increasingly, society, companies, governments and investors are focusing on the importance of investing responsibly. Environmental, social and governance (ESG) has been at the heart of our investment decision making at Aberdeen Standard Investments for nearly 30 years. And now, this focus on sustainability, which is crucial to the future of all of us and our planet, is mainstream. 

What’s your key takeaway from 2020?

(Another) lesson to have investment portfolios that can cope with the ‘bumps in the road’ that we expect, but perhaps more importantly—as we’ve seen this year—also those that we don’t. 

The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in. Information is based on Aberdeen Standard Investments’ understanding in December 2020.