COVID one year later: Five investment lessons learned

Armando Senra |May 10, 2021

A year ago, the unimaginable became real. An historic health crisis swept the globe, causing untold suffering and disruption for millions of people.

As we mark the one-year anniversary of COVID-19’s grip on the U.S., we should first and foremost acknowledge and mourn the more than 500,000 lives lost in the United States, and the roughly 2.5 million globally. And we should express gratitude for the health care professionals and other workers who have helped maintain some semblance of normalcy in our society.

Although it has been an unbelievably difficult twelve months, it appears we’re on a path toward reopening and resuming life as it was. The milestone makes now a good time to refresh my thoughts on the markets from a year ago, and reflect on what we have learned.

Here are five key lessons from the last year, and how they may shape the investing world going forward.

Stay invested and be diversified

The market selloff in February and March 2020 was wrenching for investors, who may have seen investments drop in value by double digits, but it demonstrated the sound wisdom of staying the course. Timing the market is difficult for even the most seasoned investment professionals, few of whom anticipated the strength of the rebound that occurred later: Since the market bottom in March of 2020, both the S&P 500 Index and the MSCI All Country World Index have risen more than 65%.1 Investors who sold their holdings in the midst of the volatility and stayed on the sidelines until markets had already recovered would have seen their portfolios miss the recovery and upside. It’s another example of how investing for the long term is still the best strategy.

Look for opportunities along the way

While it is important to maintain your core portfolio – typically a blend of stocks and bonds appropriate for the investor’s goals, risk tolerance and time horizon – as the foundation of your investments, it is also critical to adjust the portfolio tactically as appropriate. For example, the BlackRock Investment Institute (BII) recently suggested investors should downgrade U.S. Treasuries and voiced a preference for equities over credit. Given the potential for higher inflation, they suggested considering TIPS within fixed income portfolios. BII prefers tech and healthcare among equities, along with quality as a factor. Emerging markets, and China in particular, which may benefit more from the vaccine-led economic upswing in 2021 as well as a weaker dollar, are worth considering. We are certainly seeing the focus on equities among iShares investors, where the flows into equities this year remain strong.

Megatrends are here to stay

Many of the technological and macro-economic trends that we have identified as long-term investment opportunities have accelerated as a result of COVID. For example, genomics and immunology have been critical in the fight against COVID and other diseases; the NYSE FactSet Global Genomics and Immuno Biopharma Index is up 98% since March 2020.2 Other trends like online retail and work-from-home technologies have gained force, while infrastructure projects are seeing renewed focus. Megatrend investing provides a more precise exposure into these long-term opportunities than traditional sector exposures.

Sustainable investing has come of age

Many thought that the economic slowdown and the pandemic might result in a slowing or even reversal of the trend toward sustainable and ESG investing—that is investing in line with environmental, social and governance considerations in mind. In fact, sustainable investing gained traction in 2020, as investors favored higher quality companies, which typically have higher ESG scores, and the impact of climate change became even more evident. In 2020, over 90% of sustainable indexes outperformed their non-ESG counterpart indexes. We believe ESG will become an increasingly important part of the way companies operate, and the way investors invest.

iShares ETFs are an indispensable tool for investors

Time and time again, iShares ETFs proved their value to investors in 2020. During the volatility in March, many investors, mostly institutional, turned to iShares fixed income ETFs for their portfolio challenges, because the underlying bond market had essentially frozen and the most efficient way to trade in or out of fixed income was with the ETF. Later, as markets rebounded, ETFs helped investors access parts of the market with opportunities for growth, like clean energy or emerging markets. Whatever the investing problem was, iShares most likely could be part of the solution.

Consider strategies to mitigate currency volatility

For Mexican investors, it’s important to develop a strategy around foreign exchange exposure. We believe investors should consider currency hedged solutions that can potentially diversify portfolios and mitigate currency volatility. Diversifying one’s portfolio with single country exposures is another path to consider.

Summing it up

Like everyone, I look back on the year that has passed since COVID emerged with a mix of emotions: Grief, sadness, exhaustion, of course, but also a new sense of appreciation of all that I am grateful for, and optimism that the worse is behind us. I don’t know what the next twelve months holds, but I know that the lessons from last year will help guide us, not just in 2021, but for years to come.

Armando Senra
Head of iShares Americas at BlackRock