Data as of January 21, 2021. Source: Bloomberg.
Past performance cannot guarantee future results.
What we find striking is that returns for seven of the top nine best-performing industries were technology-related. These include semiconductors (35.4%), technology hardware (25.9%), electronic equipment and instrumentation (21.8%), interactive media (19.5%), software (14.3%), IT services (13.5%), and wireless telecom (10.8%). Only one technology-related industry performed poorly during this period, internet retail (4.6%), given idiosyncratic issues involving its two largest stock components, Alibaba and Rakuten.
As for cyclicals, metals/mining (20.5%) and machinery (11.2%) did well, on the back of expectations for fast-growing Chinese demand. Otherwise, the technology-related industries outperformed cyclicals, including chemicals (10.1%), automobiles (9.84%), oil/gas (8.1%), apparel/luxury goods (6.5%), banks (5.7%), and hotels/restaurants (4.7%).
Many stocks in technology-related industries are domiciled in Asian emerging markets. These include Alibaba, Baidu, Hon Hai Engineering, Mediatek, Samsung Electronics, Samsung SDI, SK Hynix, Sunny Optical, Taiwan Semiconductor, and Tencent. These stocks also include Japanese firms such as Canon, Fujitsu, Hitachi, Keyence, Kyocera, Murata Manufacturing, and Tokyo Electron; European firms such as ASML, Ayrden, CapGemini, Dassault Systemes, Hexagon, and SAP; as well as Canada’s Shopify.
Performance of international stocks in the wake of extremely positive vaccine results does not indicate a massive shift away from tech stocks that were buoyed by the pandemic in 2020. Instead, the message from markets largely comports to our long-term secular growth themes surrounding technological innovation, particularly in areas such as 5G, the cloud, the Internet-of-Things, factory automation, electric vehicles, and renewable energy. It also aligns with our tactical allocation overweight to emerging markets. Cyclical industries may have occasional bursts of outperformance, as they did in November when markets first acted upon the vaccine news, and there is a higher probability of more durable outperformance in 2021. As we move to a more vaccinated global population in 2021 we believe life will move closer to “normal,” increasing the likelihood of periods of strong performance for cyclicals and we have accordingly taken steps to reduce our style tilts to those growth stocks. But over the longer run, we believe technology will continue to have an advantage and outperform.