The global economy had a nosedive in 2020. Almost everyone had to endure painful losses due to the pandemic. Australia was not spared, and traditional industries had to be on a standstill due to the lockdowns implemented in each state. But the year was kind for Exchange Traded Funds (ETF). It saw a record-breaking 276 new funds launched, while the fund flows reached an all-time high at $514.9 billion. Because of these major wins, people are expecting to see the same outcome in 2021.
While the economy may remain volatile since the world has yet to recover from the impacts of the global COVID-19 outbreaks, here are some hopeful predictions that could paint a good picture for those planning to get into an ETF this year.
Growth Remains the Target
While the previous year was challenged early on by the seemingly endless bushfires and the pandemic, investors turned their attention to growth stocks. It was a viable strategy since plenty of traditional value investments were deeply affected by the lockdowns implemented in every state.
Experts explained that IT players mostly dominated the growth stocks. The industry benefited from the government-mandated lockdowns due to the increase in online activities in the market. IT has also benefited from the dropping interest rates over the past couple of years.
The trend in information technology had been doing well for a while, but the pandemic boosted its performance since millions of people in the country and worldwide had no choice but to adapt to a virtual lifestyle to continue their work and other tasks. According to the experts, the FAANG stocks of the five biggest technology companies (Facebook, Amazon, Apple, Netflix, and Google) have a big role in increasing interest. Many Australian investors used various entry points to take advantage of the growth potential.
Return to Value
The value index in Australia saw an increase by up to 17% starting the month of November. It was also when the country’s growth index went up by as much as 5%. It was the result of the shift from growth into value from a relative position.
Experts believe that the incident could be a continuous trend and expect to see value investments surpass the performance of growth investments throughout the year. It could result from the favourable updates regarding the pandemic’s handling, especially once the COVID-19 vaccination starts to roll out in the country in the coming months.
Some of the sectors that may benefit from this development include infrastructures, financials, and resources. The experts claim that the bank sector is currently facing a significant improvement. They also mentioned that the ETFS Battery Tech and Lithium ETF could do well this year, especially after the new US Joe Biden’s inauguration since he was very vocal in his commitment to sustainable energy. However, they warn the investors against major deviations against growth investments in their portfolios since it remains a long-term trend.
More Positive Outlook for Australia
Due to the ongoing return to value trend, the domestic market could be in for a great year ahead.
The experts believe that the banks and resources, which made up approximately 15% of the S&P 500, will be on the upward trend in the coming months. It could result in the possibility of the Australian market to outperform in the coming year and beyond.
Still, the experts advise the Exchange Traded Funds investors to be aware of the potential risks. It includes the possible increase in interest rates since they already got used to record-breaking low-interest rates in the country. They also recommended keeping an eye on the economic relationship of the country and China. But all in all, the ETF industry looks promising this year.