OUTLOOK 2020

Will stocks and bonds go down or up in 2020?

  • 16 December 2019
  • 5 minutes

Will stocks and bonds go down or up in 2020?

In a November 2019 roundtable, Marcus Brookes, Keith Wade and Jon Wingent took part in a discussion led by David Ryder in which the outlook for 2020 was investigated.

In this extract, we investigate how stocks and bonds might perform in 2020.

DR: Looking at specific investors, what can they do in their choice of investment to mitigate the effects of economic uncertainty and rapid changes in asset prices that seem likely?

JW: Well, it might not sound terribly exciting, but it’s the proven formula of diversification and taking a long-term view, which we do within our asset allocations. This will of course depend on individual investor circumstances.

Let’s take the potential effects of Brexit as an example. Our analysis indicates that the majority of risk that Brexit brings from an investment perspective applies to UK-based stocks and bonds. So if you allocate, say, 20% of your portfolio to UK assets and they fall by 10% as a result of Brexit, that’s an overall loss of 2% in value for your entire portfolio. That would be the implication for the short-term. Over the longer-term, we would expect this loss to have a very good chance of being recouped, although this isn’t guaranteed.

MB: I would add to that. The assets that do well in a boom tend to lead the falls in the subsequent downturn, although this isn’t always the case.

In the current economic cycle, which began in 2009, the shares that have performed the best are those that fall within the style of investing known as “growth” stocks. In other words, companies that have got above average growth in revenues and profits. This also occurred in the run up to the dot-com bubble in the year 2000. Growth stocks, particularly in the technology sector, rose to extremely high levels based largely on unrealistic hopes.

This bubble burst as reality struck when a large number of internet companies went bust, while those that survived, experienced a slump in the value of their share prices.

Meanwhile, the really boring companies that had been left behind, such as those in the pharmaceutical and utility sectors, delivered very impressive returns over the subsequent decade.

Over the most recent decade, a similar pattern has played out. However, a broader range of stocks have benefited from price rises. This means that investors need to be more selective when choosing stocks to include in their portfolios. If you bring those together into a nicely diversified portfolio, then I reckon you stand a pretty good chance of losing less money in the downturn while also being ready to capture the benefits of a rebound, although as we know with all investments nothing is certain.

Round table attendee biographies

David Ryder, Senior Investment Writer and Analyst

Schroders Personal Wealth

David has been leading the production of investment commentary at Schroders Personal Wealth (and before that for Lloyds Private Wealth) for more than four years. His 25 years of experience include publishing, broadcasting and journalism across a range of financial and investment topics.

Marcus Brookes, Chief Investment Officer

Schroders Personal Wealth

Prior to his role in Schroders Personal Wealth, Marcus was Head of Multi-Manager at Schroders from 2013 with responsibility for the Schroders multi-manager team and investment process. Marcus has over 25 years’ experience within investment management, specialising in manager selection and asset allocation.

Jon Wingent, Head of Investment Specialists

Schroders Personal Wealth

Jon Wingent has been Head of Investment Specialists since September 2016. Jon heads the investment specialist which supports colleagues and clients with subject matter expertise on investment related matters. Before joining us, Jon was an investment director at Close Brothers Asset Management. He has 17 years’ experience in the investment management industry.

Keith Wade, Chief Economist

Schroders plc

Keith is responsible for the economics team and the Schroders house view of the world economy. He is a member of the Group Asset Allocation Committee. He joined Schroders in 1988, before which he spent four years as a research officer at London Business School.

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