Unlike the first decade of the millennium, the ’10s has been far from a lost decade for equity investors, especially those who chose to weight their exposure towards the US, whose markets delivered a 271 per cent total return over the period, capped by another 31 per cent total return last year. That the US has performed so strongly should come as little surprise, for two reasons. The first was that it had done so badly in the preceding 10 years, due to an almighty recession and two savage stock market sell-offs at either end of the decade. Mean reversion alone would suggest this was unlikely to continue, especially as the world’s largest economy and stock markets will always be disproportionately geared to periods of relative economic stability, as we have seen since 2010.
The second has been the accelerated ingress of technology into almost every aspect of our lives in recent times. The US’s dominance of that industry has been a powerful catalyst for its markets – tech stocks now account for more than a fifth of the S&P 500, which compares to just over 1 per cent of the FTSE 100 (which has returned 106 per cent in the same period). The worry now is that this weighting becomes a curse rather than a blessing, because while it is hard to see technology retracing its influence in industry and society, its ever-growing presence is catching the eye of policymakers. This decade could see a major regulatory intervention that stops them in their tracks – and makes even more pertinent the question asked by Phil Oakley on page 19 as to whether US markets can continue their powerful run.
The question is also an important one in the context of the big debate that has raged throughout the last decade – the relative merits of active versus passive funds. The strength of the US market has made this seem like a very one-sided argument, with few fund managers able to consistently beat the index. But with regulatory guns taking aim at US megatech alongside a fragile economic backdrop it is hard to imagine that investing in the 2020s will remain as easy as buying an S&P tracker and heading to the pub. As we publish our Tips of the Year for 2020, it is with the thought that stock picking, much maligned, might regain the ascendancy in the coming years.
