But what about now?
Penning this note in March 2021, I’m writing in a very different context compared with 12 months ago. As the vaccine continues to roll out across the UK, a return to some sense of normality is drawing closer.
Crucially, the prospect of this will encourage more normal spending habits and ultimately boost the UK economy as we’re finally able to enjoy the products and services on offer from sectors that were significantly side-lined last year, such as leisure, hospitality and travel.
Think about it – if the government legalises going on holiday again and other countries begin opening their borders, companies such as easyJet and Ryanair would benefit from an influx of flight bookings. And as we return to the pub to catch up with friends over a pint or two, Wetherspoons and other major players will begin to recover some of their losses incurred over the past year when we were forced to stay indoors with our immediate households only. Meanwhile, Rishi Sunak’s recent Budget announcement has given a boost to the prospects of housebuilders.
What does this mean for investment trusts?
I believe trusts poised to benefit from this social and economic reopening will perform well over the course of this year as markets underestimate the strength and rapidity of the UK recovery. Specifically, I’m beginning to think about increasing exposure to UK trusts with a domestic small- and mid-cap bias, focused on value stocks within the sectors mentioned above.
The UK equity market has been unloved for a long time – really since the Brexit referendum back in 2016, which in the eyes of many investors made it a bit too political and risky to bother with. But the UK’s eventual trade deal with the EU, as well as encouraging signs of a recovery from the pandemic, have both begun to reignite investor interest in UK equities once again.
A goodbye to growth stocks?
While I anticipate an outperformance in UK-based value stocks relative to growth stocks over the coming months, I haven’t reached the stage of selling out of the latter just yet. Risks in the UK small- and mid-cap market certainly remain, such as further Brexit hiccups – but I do hope that by tilting my exposure towards this market, I should see some reward over the course of this year.