Wondering where to invest your ISA allowance? Aegon UK suggests a market rotation is afoot

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  • Emerging markets equities followed by US equities and gold were the standout sectors of the last 12 months
  • Signs of a rotation underway with questions over whether growth stocks and US equities in particular will continue to lead the way
  • UK and Japanese equities relatively attractive on a valuation basis

Aegon UK’s analysis of major asset classes over the 12 months to 31 January highlights the top performers as emerging market equities (27.9%), US equities (17.3%) and gold (16.5%) as markets rallied strongly following the dramatic falls of Spring 2020. As ISA savers consider where to invest any remaining ISA allowance, or where to invest for the coming year, Aegon UK suggests that the coming year is unlikely to see this trend continue.

The strong performance of emerging market and US equities has been driven by a long running trend of markets rewarding growth over value stocks. While Aegon believe valuations are somewhat stretched, there still appears to be investor preference towards growth stocks. Significant stimulus measures, lower interest rates and oil prices, and the sizeable influence of FAANG (Facebook, Amazon, Apple, Netflix and Google (now Alphabet)) stocks have also buoyed this trend. Gold by contrast performed particularly well as the full impact of the coronavirus pandemic became clear and investors looked for safety, but has in recent months performed less well as some degree of optimism about the economic impact has returned.

Table: Asset class performance to end of January 2021

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One of the big questions for investors is whether the trends that have buoyed the values of growth stocks in recent years will continue.

Richard Whitehall, Head of Portfolio Management at Aegon UK comments: “One of the most notable trends in markets over the last few months has been their response to the development and roll out of vaccines. While growth technology stocks continued to perform well in the last few months of 2020, their returns were dwarfed by those of small cap indices, energy indices and European banking stocks for example. All of this suggests that a rotation may be underway with a shift towards investments that have been unloved and will directly benefit from a Covid recovery.

“Our own view is that there is value in these markets. UK equities have been out of favour for some time, but with a Brexit deal now in place and as one of the global leaders in the vaccine roll-out, the prospect of a return to economic growth is on the horizon in the second half of the year. UK equity values potentially underplay the strong fundamentals of many UK companies and if sentiment shifts, it could do so quickly. To some extent the same is true of Japanese equities where we have elevated exposure in many portfolios. Their strong performance in recent months means they are now slightly less attractive on a valuation basis but still compare favourably when looking across the regions. We are relatively pessimistic about fixed income where yields remain low and the prospect of inflation and higher interest rates could hit prices, although fixed income of course plays an important diversification role in portfolios.”

 

Further information

Jonathan Henderson

Head of PR

Aegon UK

jonathan.henderson@aegon.co.uk

 

Notes to Editors

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2,000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information: www.aegon.co.uk  
  • Aegon’s roots go back more than 175 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organisations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people achieve a lifetime of financial security. More information on www.aegon.com
  • Figures correct, January 2021