Envestnet | PMC provides independent advisors, broker-dealers, and institutional investors with comprehensive manager research, portfolio consulting, and portfolio management to help improve client outcomes. Every month our Global Macro Team offers insights into the themes currently shaping the markets.
Read on for four prominent trends we’re tracking from December 2020.
Rise Of Retail Investing
The digitization trend has accelerated due to the pandemic, and online brokerage firms have been beneficiaries. More than 10 million investors opened brokerage accounts in 2020.1 Being able to trade securities with an app has essentially democratized investing, and social media has played a part as well. Also, new technology that enables an investor to buy a fraction of a share of a stock or ETF is giving access to big-name companies and index products that can help better diversify holdings. Many of these platforms provide forums for people to discuss the markets and investing, further proliferating interest.
Citadel Securities estimates that on days with the most trading activity, individual activity accounts for about 25 percent. On normal trading days, individual activity accounts for about 20 percent of daily trading activity, up from 10 percent in 2019.1 Although institutional investors make up the lion’s share of trading activity, retail investors and their impact can no longer be ignored.
Hot IPO Market
Investor expectations heading into 2020 were tempered after a much-anticipated booming IPO market in 2019 failed to materialize. However, after a slow start, 2020 did not disappoint and ended up being a record-setting year for IPOs.
With over 450 offerings, companies raised over $167 billion during the year, crushing the previous full-year record of $107.9 billion (set in 1999). Behind the surge of IPOs were special-purpose acquisition companies (SPACs), which accounted for about half of the funds raised. IPOs have been profitable as well; over the course of the year, their prices have risen about 48 percent on average from their original prices.2
Bitcoin
Bitcoin is back in the news. After falling below $5,000 in March, it now sits at around $34,000.3 The meteoric rise of the digital currency coincides with a weakening dollar and an increasing debt burden, raising the question about the viability of broader adoption. The dollar remains the reserve currency across the globe for a number of reasons, but cryptocurrencies like Bitcoin are increasingly becoming an attractive option.
A number of retailers are beginning to accept the currencies and increasing international use may help turn these currencies into common mediums of exchange. Institutional investors have also begun buying the currencies, giving them even more credence. The evolution of Bitcoin and the potential for broad acceptance will determine its future growth potential.
Read more on this topic from Scott Keller, Portfolio Manager with Envestnet | PMC, on investpmc.com/insights.
Hunt For Yield
With the Federal Reserve and other global central banks keeping interest rates at record lows and vowing to keep it lower-for-longer, there is an increased appetite towards riskier debt instruments to enhance returns and satisfy income needs. The global stockpile of negative yielding debt reaching $18.04 trillion in December 2020, pointing to the fact that the “hunt for yield” phenomenon is not confined to the U.S., but a global one.4
Hopes for a wide distribution of the COVID-19 vaccine and a future economic revival is accentuating this push towards higher-yielding debt instruments. The average yield of Bloomberg Barclays U.S. corporate high yield index reached 4.45 percent in December, a level not seen since June 2014.6 Prospects of a weaker U.S. dollar in 2021 is also pushing investors towards Asia credits within the EM space. According to PIMCO, spread premium for Asian credits relative to U.S. credit is currently near a three-year high.5
If you’d like additional information about these themes or have questions, please contact PMC.Research@envestnet.com.
Sources:
- Caitlin McCabe, “New Army of Individual Investors Flexes Its Muscles,” Wsj.com, last modified on December 30, 2020, https://www.wsj.com/articles/new-army-of-individual-investors-flexes-its-muscle-11609329600.
- Maureen Farrell, “Record IPO Surge Set to Roll On in 2021,” Wsj.com, last modified on December 30, 2020, https://www.wsj.com/articles/record-ipo-surge-set-to-roll-on-in-2021-11609324381.
- “Will Bitcoin end the dollar’s reign?,” FT.com, last accessed on January 6, 2021, https://www.ft.com/content/ea33b688-12e0-459c-80c5-2efba58e6f1a.
- “World’s Negative-Yielding Debt Pile Hits $18 Trillion Record,” Bloomberg.com, last modified on December 11, 2020, https://www.bloomberg.com/news/articles/2020-12-11/world-s-negative-yield-debt-pile-at-18-trillion-for-first-time?.
- “Today’s Credit Opportunities in 5 Charts,” PIMCO.com, last modified on December 23, 2020, https://www.pimco.com/en-us/insights/investment-strategies/featured-solutions/todays-credit-opportunities-in-5-charts/.
- “U.S. Junk Bond Yields Hit Record Low For Second Time This Year,” Bloomberg.com, last modified on December 3, 2020, https://www.bloomberg.com/news/articles/2020-12-03/u-s-junk-bond-yields-hit-record-low-for-second-time-this-year?.
The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
Written By:
PMC Global Macro Team