Just when many professionals thought American equity markets could not go any higher, January kicked off with an explosion in day trading as home-locked individuals piled into stocks whose massive overnight gains were all over the media.

2020 was a banner year for investing and concluded on a strong note through December. For the year, the tech-heavy Nasdaq surged over 44% in total return terms, gold and copper were up 25% and the MSCI World Equity Index closed 2020 at a record level.

At the same time, the dollar slipped in value against the euro, which is significant for people investing from Ireland. According to Zurich, although the overall US market recorded a 2020 return of 16.3%, the euro return was limited to 6.8%. Growth areas continued to outperform, with technology up 44% and consumer discretionary stocks up 33%. By contrast, so-called ‘value sectors’ such as energy were down 34%.

The backdrop to continued gains in 2021 is positive. Markets are underpinned by unprecedented levels of monetary and fiscal support, bond yields are near historic lows, and both institutional and retail investors are sitting on piles of cash. In the US, the speculative bubble is propelled by retail traders who have a fear of missing out.

On January 27, data tracker AppTopia reported 120,000 app downloads for trading platform Robinhood, the most ever in a single day. Day traders are excited by the remarkable tussle over GameStop between Wall Street shorts and the retail crowd, which delivered quick wealth for the lucky few in at the start of the action. The herd then moved on to other stocks such as AMC, Nokia and Palantir, hoping to repeat the trick.

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Brokers and platforms have tried to calm things down with leverage adjustments, but there is a view that even fund managers can’t ignore the bubble for FOMO reasons too. All of a sudden, millions of people who usually amuse themselves on Xbox are playing stocks, and they have cash to burn due to lockdown restricting their usual spending patterns.

Tops For Fund Transparency

Few investment funds offer the transparency of the Goodbody Funds ICAV, the umbrella company for a number of funds operated by the Dublin broker and wealth manager, currently being courted by its former owner AIB. The ICAV company details the income and outgoings for investment funds such as the Dividend Income Cautious, Dividend Income Balanced, Global Smaller Companies, and Global Leaders.

With a combined asset value of €340m for the seven funds in the ICAV, as of June 2020, the operation is small relative to some of mega mutual funds operated by life companies. But size doesn’t matter when it comes to generating returns.

The Dividend Income Balanced Fund has appreciated by 37% since launch in 2015 to the end of 2020. It made a poor start in 2016 to 2018, but picked up in 2019 and last year delivered a gross return of 9.6%. Equities make up two-thirds of the fund allocation, with Apple, Microsoft, Analog Devices, Stryker and Fastenal among the top picks.

Fund accounts for the half year to June 2020 disclose dividend income of €790,000 and costs of €375,000. Happily, the fund assets also delivered realised and unrealised gains of €4.3m. Four of the other funds in the Goodbody ICAV racked up investment losses in the period.

Investment management fees for the half year across the seven funds totalled €810,000. For retail investors, the Goodbody funds are available through New Ireland’s Easy Access Smart Funds suite.

Photo: GameStop share is more exciting than a video game