Investment Behaviours in a Covid-19 World

Coronavirus has had a massive impact on the UK economy – in 2020 it shrank by 9.9%. The contraction “was more than twice as much as the previous largest annual fall on record”, said the Office for National Statistics.

GDP in last 15 years

After growing in October, the economy shrank in November, and then rebounded in December, so it seems that we will avoid a double-dip recession.

GDP in 2020

 

Faced by the biggest economic shock in global history, the fact that a lot of investors decided to change their portfolio could be surprising. But the even bigger surprise is the fact that about 35% of them reacted by increasing their exposure to higher-risk investments.

Following the latest Schroders’ Global Investor Study, an annual survey taken by more than 23,000 investors from around the world, suggests that a vast proportion of investors saw an opportunity in February’s large economic decline to invest further.

The survey was carried out between the 30th of April and the 15th of June in 32 different countries worldwide. It probed investors about their actions following the lockdown.

78% of investors participating in the survey decided to make some changes in their investment portfolios, and about 35% of them moved “some” or “a significant proportion” into high-risk holdings.

Investors Behaviour in 2020

Changes in Investment Portfolios in 2020

Taking risks when investing can often depend on the investor’s age. Younger people are keener on taking risks, so the results suggest, investors aged 18-37 were almost twice as likely to alter their portfolios than those aged 51-70 were not surprising.

Investment performance has become a bigger priority for investors over the last year, as about 83% of them think about their portfolio at least once a week. Before COVID-19, only 35% of them were doing this.

Investment income

Investors expect to receive an income of 8.8% from their portfolios over the next 12 months, which is lower than the 10.3% income they expected in 2019.

Investment incomes depend on the average returns of investment.

Last year, at the beginning of the pandemic, we prepared an article which discussed 5-year average returns from different investment types. In the table below you can see an average annual rate of returns (2015-03/2020).
Read more here: Classic cars, coins and fine wine have been the best investments in the last five years

Average anual rate of returns (2015-03/202)

Yields of the most popular investments have changed during the pandemic, take a look at the chart below.

Average Investment Returns in 2020

Average Investment Returns in 2002 vs. from 2015 to March 2020

FTSE 100

The UK FTSE 100 index fell by 14.3% during 2020, and it is one of the poorest performances among the largest international stock index.

The FTSE 100’s was so weak partly because of the pound’s strength, which erodes the value of multinationals’ overseas earnings.

Gold

When the stock markets crashed, gold hit new highs and many analysts predict even further gains. The return rate for gold varies from 2002 to 2020, but we saw mostly positive returns. In 2020, the return of gold hit 25%.

Wine

Despite challenging times, fine wine displayed low volatility relative to most financial markets.

Bonds

Last year, bond returns fell, partly because of the cutting of interest rates and committing to keeping them at a low level by the central banks. The UK corporate bonds returns reached 3.5% at the height of the crisis.

Sourced Capital

The P2P analyst, 4th Way, claims that P2P investors made a positive return during the pandemic, especially compared to stock markets.

The global crisis hasn’t had a big impact on Sourced Capital investment returns. The average investment return was a solid 12.13%.

Some P2P platforms had to close or suspend their activities, because they had problems with nervous investors who wanted to withdraw funds as soon as possible. A few couldn’t find a balance between withdrawal requests and maintaining liquidity to approve and fund loans.

Fortunately, Sourced Capital had a relatively good year. With over 20 projects funded, the full amount invested was over £10,000,000.  

To learn more about Sourced Capital, download the lenders guide.

Capital at risk. Not covered by the FSCS. Past returns are not necessarily a guide to future returns.

 

 

Sources:

UK economy suffered record annual slump in 2020

Market shock: how did investors react to the impact of Covid-19?

FTSE 100 suffers worst year since 2008

FTSE 100 suffers worst year since financial crisis

Return on gold as an investment since 2008

Cult wines 2021 Outlook

Why we see opportunity in UK corporate bonds

Which bonds for 2021

How the pandemic has changed P2P lending

P2P outperformed UK stock market during the pandemic