2020 in review

2020 began ominously, with geopolitical tensions between the US and Iran at an all-time high, and simultaneously, a watching world gripped by images of devastating bushfires in Australia. What was to follow cemented this year’s reputation in modern history and is near impossible to summarise in just a paragraph. In the US alone we had a presidential impeachment, a raging pandemic, the largest protests in history, a disputed presidential election, and a stock market up nearly 10% for the year after a historic collapse in the spring.

The performance of Zurich funds this year has been impressive, and the most up to date figures can be found on our website. Zurich believes that active investment management has the potential to deliver outperformance, and Zurich has delivered this consistently over the long-term. Occasionally, depending on underlying market conditions, it delivers exceptionally – and 2020 has been one of those occasions. Interestingly, the concept of tracking the market using an index can never deliver this. People often mistake the certainty you get from tracking the market as a ‘security’ or a likelihood of achieving your goals as an investor. This is not true.

However, the outperformance and positive compounding of returns delivered by Zurich’s active management approach in 2020 will continue to benefit those saving with Zurich for many years to come.

We always aim to be in tune with markets and be aligned with fundamental trends whilst capitalising on opportunities as they present themselves. Our performance this year is a combination of the macro backdrop of the market and how we were positioned. We expressed conviction at key inflection points in 2020 and we have been proven on the right side of many of those positions so far. We do however operate within a controlled risk and governance environment when we are expressing our convictions. We avoid binary outcomes, aim to take calibrated risks, and always be cognisant of sector and wider market divergences. Indeed, 2020 could be described as a microcosm of the wider economic cycle, and within that context there are valuable lessons.    

Economic and asset cycle

Assets, sectors, and holdings in the economic cycle are dependent on where we are in the cycle itself, and thus this remains the steadfast starting point within Zurich’s active top down investment process.  Equities tend to lead the economy and have continued to be supported by policymakers in recent economy cycles – a fact repeated this year as the ‘don’t fight the Fed’ mantra spread globally.

A consistent approach leads to consistent results. 

Asset allocation

We stuck to our process and to our convictions throughout the market capitulation in the spring, as bear markets typically portend economic recessions, and equities tend to recover before economic data hits a trough. Favouring equities and credit resulted in Zurich capturing significant upside since the market lows. All Zurich Multi-Asset Funds are outperforming their peers year to date.* 

Regional selection

We held strong conviction over parts of the US market in 2020, but we’ve also favoured specific sectors within Europe and Asia. As always with regional selection, currency fluctuations have been a key consideration in our decision making and we currently have hedged some of our US Dollar exposure.

The Zurich International Equity Fund is 8% ahead of the index year to date. All four main regions (Global, Americas, Europe, Asia Pacific) are all ahead of the index, ranging from 6% to 13%.** 

Sector selection

Sector dispersion has been a key theme across the markets in 2020, and we have been on the right side of much of that. Our positive bias towards sectors such as Technology, Healthcare, and Consumer Discretionary stocks at the expense of sectors such as Energy, has greatly enhanced returns. Active Management allows us to capitalise on structural sectoral trends. 

Holdings

Individual stock selection continues to focus on different themes across different regions. For example, evolving consumer trends and utilising technological advancements has underpinned strong returns in companies such as Nike, Solar Energy, and Intuitive Surgical. However, we have also capitalised in opportunities within Value, with CRH a particularly strong performer since we added to it in March.

Volatility creates opportunities, and we invest in good companies irrespective of their region or sector.

A consistent yet evolving approach

There has been a consistency in our approach for over 30 years, as we continue to operate within a robust risk and governance framework. Investment markets and the wider economy are constantly evolving, but the long-term principles of good active investment management rarely change. Indeed, the reason for the bear market was a scenario unseen in 100 years, yet the same behaviours and characteristics were observed as we move through the full market cycle.

Within our overarching investment philosophy, we continued to evolve and enhance our proposition. For example

• We have adjusted and evolved the methodology behind our Prisma Funds and most recently added Corporate Bonds to our portfolios and as stand-alone funds.
• In recent weeks we have modified the process behind the Dividend Growth Fund. The Dividend Growth Fund is a global equity fund with a dividend bias which employs a quantitative stock screening process. By its nature it operates very differently from Zurich’s standard investment process. If you would like further details on these amendments, please do get in touch. 

Investment outlook 2021 – crest of the wave?

Finally, we are continuing to look forward and assess the market conditions as we move to 2021. We’ll continue to identify opportunities within investment markets, and to ultimately provide positive risk adjusted returns for our customers. With that in mind we are delighted to invite you to our 2021 Outlook Webinar, which is always one of the best attended of the year. ‘Crest of the Wave?’ takes place at 11am on Tuesday 12th January and you can register by clicking here.

*Figures provided gross of AMC by Moneymate. Performance figures for all fund managers are based on close of markets prices 30/11/2020, based on best available information.

**Zurich, Bloomberg, International Equity Fund inclusive of 0.4% AMC. Performance to 1st December 2020