Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Looking backwards, stepping forwards
With 2020 behind us, the first year of the pandemic is now history, but recent headlines suggest it is far from over. The virus continues to spread, intermittent lockdowns have become the norm and Australia will soon roll up its sleeves after securing 53.8m doses of the AstraZeneca and 10m doses of the Pfizer vaccines. Those working in quarantine hotels, along with health professionals, cleaners and transport workers will be among the first to receive the vaccine. In similar fashion, countries around the world will finalise vaccine deals with drug pharma companies in the hope that it will slow the spread of the virus.
This “hope” drove investor confidence higher and caused markets to rebound quickly from the lockdowns late last year. Well hope combined with ‘helicopter money’. The market expectation is for things to return to some normality in 2021. The S&P 500 Index erased the coronavirus losses of 2020 as investors have taken a risk-on attitude outweighing fears of lasting coronavirus fallout. The index ended with a 16.3% gain, which was an above-average result the benchmark index supported by the release of Government stimulus, negative oil prices and a move to digitisation. Australian shares have almost recovered from 2020 losses and isn’t far off.
Performance has varied by sector and split into two categories: stocks that stood to benefit from COVID-19, and those that didn’t. Using data from S&P Global, we have ranked the 2020 performance of every sector in the S&P 500.
Who were the big winners?
Companies that did well, obvious beneficiaries of COVID, were those that were able to transform their service offerings online and do so quickly. Here are some of the sectors that performed best:
- Tech (Software) – No surprises here. Tech was the big winner outperforming every sector as millions worked from home, creating an immediate challenge for organisations to digitalise or be left behind. COVID-19’s economic impact benefited the sector as activities, from work to socializing, moved online. The top performers were companies that successfully switched to a digital model such as remote working, conferencing and ecommerce. Shopify, which rose 178% on the year was one of the highlights.
- Internet Retail – While brick and mortar stores suffered from the fall in foot traffic, retailers who were quick to capitalise on the move to digital via ecommerce, team purchasing, and consumer-to-manufacturing (C2M) sales, benefitted the most.
- Basic Materials – Companies engaged in commodities exploration and processing such as BHP and RIO did well. Albemarle the largest supplier of lithium for electric vehicles, doubled its share price.
- Freight & Logistics – With the move to ecommerce came an unexpected rise in freight logistics as consumers switched to ecommerce platforms. Stock Cryoport was up 165% on the year after seeing a rise in demand for the transportation of ultra-refrigerated vaccines.
- Other sectors that fared well: Semiconductors, discount stores, retail home improvement, , medical care facilities, and consumer electronics.
On the flip side, there was everything that did not benefit from COVID and the lockdowns that followed. With -37.3% returns, energy was the worst performing sector, hit hard by a complete global halt on transportation and an oil price war between OPEC cartel members. The same movement issues hit the hospitality, leisure, food industry and retail sectors hardest.
- Oil and Gas – COVID lockdowns disrupted all modes of transportation causing a massive oil supply glut which sent the oil price tumbling into the negative. Visual Capitalist says “BP finished the year at nearly half its market capitalization, falling 46% on the year”.
- Diversified Banks – It was a tough year for banks in general. Record low interest rates combined with “credit risks looming from unemployed borrowers, bank stocks struggled in 2020”.
- Real Estate – Hardest hit were shopping centre and office REITs. As foot traffic disappeared, it created a challenging time for both tenants and their landlords. Mall operator Simon recorded a fall of 41% in 2020.
- Airlines – An obvious casualty of COVID. As borders closed, global airline companies found themselves fighting to stay above water after passenger numbers vanished. Zoom web conferencing has become the professional norm and is expected to take a slice of what was airline revenue. “United Airlines finished the year at less than half their market capitalization (-54%)”.
It may seem odd that markets have performed so well during a black swan event, but it all boils down to market expectations and how these were or weren’t met. Several factors that included massive Government stimulus, low interest rates, a move to digital, and vaccine expectations have all contributed to the market’s performance. In many cases, the most prepared companies, Walt Disney for example, have brought forward five year business plans into a single year.
As countries begin to rollout vaccines, there is hope that the market will look past the pandemic and people will start to feel safe again. With the help of Government stimulus measures and return in investor confidence, the hope is that markets will make a gradual shift back to normality in post-pandemic world.
