Crystal ball-gazing is not my investing style. But today I’d like to discuss two themes that I believe will be important in 2020 and how I’d continue to invest in the light of macroeconomic and political developments.
Volatile geopolitical developments
For the average investor, I think it’s better not to make hasty decisions based on any geopolitical expectations.
The UK has a healthy economy. However, Brexit has dominated our lives for over three years and left the economy with many question marks. The final weeks of 2019 also saw general election uncertainty. Overseas, trade worries between the US and China continued to bite.
Nonetheless, 2019 was a year of robust investment returns for many asset classes, including the FTSE 100 and FTSE 250 indices. You could have been invested in a wide range of assets and done well last year.
In 2020, I expect there will be plenty of market-moving developments both in domestic politics and international affairs. Many in the US have already started discussing how political uncertainty will be elevated by the forthcoming presidential elections in November.
Nervousness about global growth prospects may give broader markets the jitters at some point during the year. And prices of oil, gold and other commodities will likely fluctuate as geopolitical headlines hit the wires during the year.
Yet retails investors would be better off if they stopped worrying and instead concentrated on their long-term investment goals.
For example, I’d regularly review my portfolio with an eye to diversifying. Diversification, either by sector or geography, may provide a relatively defensive investment opportunity.
If you’re not quite sure as to how to diversify, you may consider buying a FTSE 100 or FTSE 250 tracker fund, or the FTSE All-World ETF that tracks the performance of a large number of stocks worldwide.
Interest rates may stay lower for longer
Following the 2008/09 financial crisis, central banks globally started reducing interest rates. And the strong bull market of the past decade was in part a result of these low rates.
While economists and analysts debate both the advantages and perils of easy money, many in the City concur that low interest rates are likely to stay with us for the foreseeable future.
Such low interest rates are generally good news for consumers with loans, as well as for businesses that borrow to make investments. But perpetually low rates also mean low returns on Cash ISAs for Britons, as the top easy-access Cash ISA rate hovers around 1.35%.
Therefore, I expect another strong year for many popular dividend shares. Dividends have long been an important source of passive income for a wide range of investors. Currently there are several companies I’d consider buying, especially if there is any weakness in their share prices. In the FTSE 100, they include:
- Aviva, dividend yield of 7.2%, forward P/E 7.3
- British American Tobacco, dividend yield of 6.1%, forward P/E 10.1
- Lloyds Banking Group, dividend yield of 5.2%, forward P/E 8.8
- Persimmon, dividend yield of 6.4%, forward P/E 12.9
- WPP, dividend yield of 5.6%, forward P/E 10.9
In the FTSE 250, they include:
- Bakkavor Group, dividend yield of 4.2%, forward P/E 10.9
- Hammerson, dividend yield of 8.4%, forward P/E 11.1
- Inchcape, dividend yield of 3.7%, forward P/E 12
- Marks and Spencer Group, dividend yield of 5%, forward P/E 11.6
- Petrofac, dividend yield of 7.5%, forward P/E 6.2
Finally, the iShares UK Dividend UCITS ETF may be a possibility to consider for a long-term portfolio.
