Key Investment Themes in 2021 and Lessons Learnt from 2020

A global pandemic, followed by a swift response from Government, community and industry had a big impact on Australian retirees and investors in 2020. Not to mention the broader social, political, and cultural trends.

A lot of changes came in the form of acceleration or disruption. But perhaps the big changes might still be ahead of us in the form of new possibilities.

Here’s a short summary of the key themes we think will dominate the next 12 months and beyond.

The World is Going Digital (and Fast!)

COVID-19 has accelerated growth in the digital world. There has been a rapid transformation in the way we are now connecting, working, eating, learning, and seeking things like medical assistance.

Australian investment into cloud Infrastructure as a Service (IaaS) is already expected to hit $A1.1b in 2020 and reach $A2.0b by 2021.[1]

Other key trends include the roll-out of 5G and investment in digital infrastructure to support more online traffic.

For companies still doing things the old way, and technophobe sectors like health and education, there has never been a better opportunity to close the digital gap.

From City to Country

Strong population growth and lots of people in our cities have long been the driver of demand for social and economic infrastructure in Australia.

But the closing of borders, shift to flexible working and changing commuter patterns has disrupted this trend and created an opportunity for regional areas.

New infrastructure projects will be used by governments to stimulate jobs in the city and country. Watch for a shift to flexible precincts like co-working spaces, transport infrastructure, and regional projects.

Strong population growth and urbanisation will continue to be a key theme in the long term, but the short term will be ruled by where we work and how we get there.

A Greener Economy

Early 2020 was dominated by the Australian bushfires. Raging infernos in multiple states highlighted the need for a switch to a greener economy.

Kudos to corporates who took the initiative and set ambitious targets to reduce CO2 emissions in the aftermath of bushfires. But exactly how many of these industry ideals will be achieved is not yet clear.

One thing is clear though: further investment in technology is required to keep a lid on emissions and mitigate the effects of climate change.

The Australian Government has already identified a roadmap with key priorities for the renewable energy sector (including clean hydrogen and energy storage). These forms of energy are likely to be critical on the journey to a zero-carbon Australia.

Digital Defence Spending

The Australian government has committed $A565b in defence spending, with $A15b allocated to boost ‘cyber resilience’ over the next decade.[2]

This reflects a growing desire for stability and security in response to:

  • supply chain disruptions
  • a move away from globalisation, and
  • a drastic increase in cyber scams post-COVID-19.

Investment in ‘national resilience’ (as politicians like to call it) is likely to create more local jobs, unlock opportunity for high-tech Australian businesses, and position Australia as a potential powerhouse in cybersecurity.

A Steady Path with A Vaccine on the Way

While global themes of 2020 were dominated by acceleration and disruption, 2021 will mark a shift towards cautious optimism and gradual economic recovery.

New vaccines in the pipeline are a sign that the worst is behind us.

Combine this with growing consumer confidence, increasing resilience, a softening of political outrage (due to a Biden presidency), low interest rates and stable share prices all indicate 2021 will be a little easier.

Lessons Learnt from 2020

If there is a major lesson from 2020 it is this: corporates, government, and investors alike will need to remain adaptable in the face of uncertainty and innovative in the pursuit of a healthy economic future. 

Dispersion in share market returns throughout 2020 has emphasised the importance of active management and the need for broad portfolio diversification.  Holding Cash and blue-chip bank shares won’t provide the income or protection most investors need in today’s investment universe.

Perhaps the most important lesson learnt from 2020 is that making changes to your portfolio composition after the fact can be disastrous.  The key to quality risk management is that defensive positions in your portfolio need to be in place from the get-go.

Once a market downturn is underway, altering the composition of a portfolio can add more risk. We saw this happen in March after large falls had already happened.

With many people stressed and locked at home the temptation was too great for some. Many investors made changes to their portfolio composition and subsequently missed out on the recovery. A recovery which has seen global equities rise by 63% from their 23 March 2020 low point[3].

How to position your portfolio in 2021

The range of outcomes concerning COVID-19 remains very wide highlighting the need for broad portfolio diversification.

The fall in dividend yields will continue to raise questions for many investors who may need to draw down their capital to maintain their income.  In a broader context where cash rates also remain at record lows this can present challenges. 

Drawing capital introduces additional risks that involve a lot of careful planning and trade-offs to allow for a comfortable income without running out of capital.

Getting your asset allocation, portfolio rebalancing and portfolio withdrawals right are just 3 of the ways a good financial adviser can add value to your returns in 2021.

 To learn more about ways we can help you make the most of your finances, feel free to read our latest blog post: 7-reasons-why-you-should-employ-an-adviser.

If you’d like to speak with one of our qualified financial planning experts in more detail about some of the key themes listed above and how they could affect your portfolio then give us a call on 1300 242 700.

We have offices in Geelong and Torquay and have been helping clients manage their investments for more than 30 years.


[1] https://www.macquarie.com/au/en/perspectives/2020-year-in-review-and-2021-outlook.html

[2] Australian Cyber Security Committee; Department of Home Affairs; Australian Government; Statista; ANZ Blue Notes

[3] MSCI World Index Total Return (AUD Hedged) as at 9/12/2020

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