2020 has been a year like no other. For even the most experienced investor, it has proven to be troublesome and turbulent. The volatility caused by uncertainty surrounding the pandemic has made making consistent returns difficult. In addition to the pandemic, investors also had to grapple with other politically important events. The American election and Brexit negotiations also cast big unknowns onto investment cases.
However, some sectors, in general, managed to perform well throughout the pandemic. Despite the hugely problematic trading environment, some industries posted better than ever profits. But what were they? Here, we look to answer that question as we look back through 2020 for the sectors that were the real winners.
Best performing sectors of 2020
Despite a sell-off in the early autumn, the technology sector did incredibly well from its starting point on January 1st, 2020. As much of the world's population spent more time indoors, usage of FAANG stocks exponentially increased. Investors who had a holding in the likes of Facebook, Amazon, Apple, Netflix and Alphabet will all have seen their investment grow. Apple even saw its market value reach $2trn in August. At one point, its share price had increased by over 50% this year.
The consumer goods sector is up over 25% from where it started the year. As a sector, industries such as leisure goods, household goods and tobacco are all included. Given how much more time consumers spent within their household bubbles, it makes sense that this sector would fare the pandemic well. Investors who were overweight in this sector would have seen their portfolio grow. It will be interesting to see how this sector performs in 2021 with the rollout of a vaccine hopefully encouraging life to return to normal. It begs the question, will consumers spend as much money on consumer goods needed for their gardens and DIY projects in 2021?
Consumer services additionally did well. It, too, rose over 25% from the beginning of 2020. It is an interesting sector to have fared so well through the pandemic though due to the inclusion of travel and leisure companies within it. However, food and drug retailers also help comprise the sector, which did notably well from lockdown restrictions. With consumers having to stay in for all meals, supermarkets saw their numbers grow. In fact, recently, Tesco vowed to repay £585 million to the government. The company benefited from the business rate cuts, which helped businesses stay afloat during the pandemic. Given how well it did, Tesco offered to pay back the relief they received.
The industrials sector includes many different companies from seven industries. Two of those industries that fared well during the pandemic were Support Services and Electronic & Electrical Equipment. It is when you break down sectors into these industries that you begin to see why they can perform so well - even when times are hard. That being said, there would have been a considerable drag on this sector's performance. That will be partly down to the inclusion of construction and materials industries. With many construction sites closed all over the world for large parts of the year, the impact on stock performance was immediate for many of these companies. Positively, UK construction companies have seen a rebound in the tail end of 2020 however.
Finally, the basic materials sector also provided investors with some winners. Within this sector are the industries of mining, chemicals and industrial metals. Historically, they have always been closely related to consumer goods. As a result, when that sector does well, basic materials do as well. That was still the case even during the unprecedented conditions of the pandemic this year. For example, think about all the packaging you went through this year. That will have started its life at a basic materials company.
Best performing sectors through the pandemic
The pandemic made every investor think quickly to identify profitable investment decisions. However, some would argue that all the pandemic did was accelerate where the global trends were headed anyway. Increased demand for technology was realistically only ever going to rise in the future. Investors only have to look at the faltering great British High Street to see that our lives are spent increasingly online.
Additionally, some would argue that there was always going to be an increased demand for a greener way of living. The sudden plummet in demand for travel saw oil companies particularly struggle. And now, governments have been challenged to invest in economies through greener initiatives. The hope is that in doing so, these initiatives can help turn the tide of pandemic induced recessions.
Ultimately, looking at investments through a sector-specific lens can be both beneficial and detrimental when picking stocks. It can be detrimental if you choose a company solely by looking at a well-performing sector without taking into account that company’s fundamentals and individual performance. However, it can be beneficial if you use the sector as a starting point to help identify companies that are currently undervalued and should see their stock price grow in the future.