In 2020, the share price of spread betting company CMC Markets (LSE: CMCX) gained approximately 167%. There are several reasons why it did well in what was a difficult year, but will it outperform in 2021 too?
The most obvious reason why the spread betting company did so well is because market volatility encourages more trading. Also, for part of the year, especially around March and April, share values plummeted. This deterred many people from investing as they feared further declines. But CMC Markets was one of a handful of stocks that were obvious beneficiaries of a stock market slump. This helped keep its shares in demand.
Another reason why the share price did well in 2020 is that the dividend jumped massively. The final dividend went from 0.68p in 2019 to 12.18p in 2020. As other firms cut or suspended dividends this will certainly have attracted some new investors to the business.
Also, it’s worth noting that CMC Markets is more than just a spread better. It’s also a stockbroker in Australia. It has about 17% of the stockbroking market there so it’s quite a significant player. Overall, it operates in 12 countries and has around 57,000 clients.
Lastly, a developing technology component to the group may also be pushing up its valuation. White-label deals with other financial companies are another source of revenue and profits for the group and diversify its earnings from the regulated spread betting market. We saw in 2020 that tech stocks were very much in favour with investors, so this would have helped.
But can the upward march continue? I think that’s perhaps unlikely. Of course, it’s hard to know what exactly the future will look like and CMC Markets seems like a quality operator with multiple strings to its bow. However, I expect this year that the stock market will be less volatile, so I wouldn’t rush to buy the shares now.
Another high-flying share from 2020
Scottish Mortgage Investment Trust (LSE: SMT) is a well known investment trust, most famous for its early and significant backing of Tesla. Despite trimming its position in the electric car maker, Tesla is still its biggest holding. That’s followed by Amazon then Tencent. Other innovative companies in the top 10 holdings include NIO, Alibaba and Delivery Hero.
To hold this investment trust after its meteoric rise in 2020 I’d have to be very confident there’s not a tech bubble set to burst. If there is, the trust could be one of the biggest casualties.
On the other hand, technology may continue to be a winner. The managers have certainly done well backing industry-leading companies to date.
I do think that 2021 could be another strong year for the trust, especially with lockdowns being extended, which should increase the speed of digitalisation and technology adoption still further. However, while I don’t see a crashing share price ahead, I expect growth to slow as life gets back to normal. I wouldn’t hold the trust for the long term with expectations of the same level of fast growth. But I think its portfolio of tech leaders could still deliver solid returns in the future.
