WEEKLY E-MAIL

6 July 2021

FINANCIAL YEAR 2020/21 – THE REBOUND

By Sam Eley

With 30 June 2021 now in our rear-view mirror, we can safely say that the 2020-21 financial year was one of the best on record and the best annual return for investors since 1987.

The respective indices for major asset classes all boasted very positive returns:

Market returns were boosted by a depressed starting point (e.g. the S&P/ASX 200 lost 7.68% in FY20), record low interest rates driving investment into equities and residential property, a faster than expected improvement in business fundamentals, assisted by strong monetary policy support by governments and central banks and elevated confidence as a result of vaccine efficacy and rollout progress.

By the end of FY21, global GDP had already recovered back to its pre-COVID level – surpassing even the most optimistic of ‘V Shaped recovery’ forecasts made a year earlier.

Source: Factset, MWM Research, July 2021

There was substantial dispersion in returns as cyclical stocks generally outperformed defensive stocks, which was a reversal of the early financial year trend as stocks and sectors that had been winners from COVID lockdowns became ‘losers’ following the vaccine-triggered Growth to Value style rotation in November 2020.

Consumer Discretionary was the standout performer amongst local sectors as domestic consumption increased, and Financials recovered strongly as the demand for credit rebounded (as seen within the residential housing market) and fears of default and increases in unemployment were allayed.

Utilities were the lone major sector to post a negative return in FY21, as investors became increasingly concerned about the impact of climate change and decarbonisation on the future of these companies.

The other major sub-sector that attracted a negative return was gold (-18.5%), as the gold price weakened sharply after peaking in August 2020. Gold is often seen as a ‘safe haven’ when equity markets are falling, but has been hurt badly on the sharp rebound.

On the Australian dollar front, the AUD rose sharply against the USD in the second half of the year, aided in part by the strong iron ore price. After starting the year at 69 cents, the AUD finished the financial year at 75 cents, reducing the return on unhedged international investments.

Source: Factset, MWM Research, July 2021

While optimism abounds following a bumper year, risks remain. Potential inflationary fears, rising interest rates, further COVID-19 outbreaks and variants, rising geopolitical tensions and elevated valuations are still present. However, markets both domestically and globally have navigated these concerns incredibly well to date.

Sam Eley
Senior Financial Planner
Authorised Representative No. 1234685

If you have any questions or comments, please email me at sam@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution.  The information here is of a generic nature, and does not take into account your investment objectives or financial needs.  No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

Copyright: © This publication is copyright. Subject to the conditions prescribed under the Copyright Act, no part of it may, in any form, or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced or transmitted without permission. Enquiries should be addressed to GFM Wealth Advisory.