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The 3 big rules of wealth creation in 2021

Published 16 Dec 2020

There is no doubt that 2020 was one of the most remarkable years of most investors’ lives. The Covid-19 pandemic has changed the world. Global economies are struggling and policy makers are spending and printing unprecedented sums of money to try and stimulate activity.

As we say goodbye to 2020, it is important to begin to look to 2021 to assess how these huge changes will impact 2021 investment portfolios for wealth creation.

What is clear is that investors can’t sit still. They need to move quickly and adapt.

Below we look at three major trends – the risk of inflation, the migration online, and the emergence of Web 3.0 – that we believe investors need to be across to survive and thrive in 2021.

1. Protect against the risk of accelerating inflation.

Most investors wouldn’t remember the last time (the 1970s and early 80s) when inflation was a risk. But that benign outlook is changing.

The economic damage from Covid-19 has been immense. The IMF and Brookings Institution estimate the loss of global GDP in 2020-21 will be $US12 trillion.

Governments have reacted by engaging in unprecedented stimulus. Global stimulus is 300% more than during the GFC in 2008/9. Governments have committed over US$10 trillion in the second quarter of 2020 alone. 

At the end of 2020 total global debt is expected to surpass US $280T. Continued monetary policies such as Quantitative Easing will likely be required to maintain low interest rates to service this level of extreme debt.

Value of COVID-19 fiscal stimulus packages in G20 countries as of October 2020, as a share of GDP 

Source: IMF Oct-20

That scale of global stimulus, and a prolonged period of near-zero global interest rates, risks triggering a significant rise in global inflation and a loss in purchasing power that could slash investors’ standard of living.

Accelerating inflation, along with record-low yields, means that fixed income, such as government bonds, and cash have a very high risk/low return profile for the foreseeable future.

Investors planning their 2021 investment portfolio need to be allocating to assets that will maintain (or grow) their purchasing power during the 2020s.

The spectre of inflation has seen investors buying traditional inflation-resilient assets such as gold. In 2020 Bitcoin was the best performing new asset class. We also believe they should be considering digital currencies, including Bitcoin, which are set to become the ‘digital gold’ of the modern era. 

Bitcoin growth over 12 months

 

Source: 10-Dec-2020 https://www.blockchain.com/prices/BTC

Investors should also be identifying sectors and companies that have a likelihood of delivering strong returns to counter the effects of inflation such as the largest online retailers such as Amazon and Alibaba, alongside large tech providers that enable people to work and communicate more effectively from home.

2. Invest in the Covid online inflection (including the digital health boom)

During Covid we all worked, shopped and lived online more than ever.

While restaurants struggled in 2020, we saw an enormous shift online for food delivery services, with Uber Eats announcing 103% growth in revenue over the 12 months to August 2020.

The use of online communication tools saw explosive growth, with Microsoft Teams announcing 50% growth to 115 million active users over the 6 months to October 2020, and Zoom Communications share price shot up over 600%.  

Daily active users (DAU) of the Zoom app on android and iOS devices in the United Kingdom (UK) from January to November 2020

Source: Airnow, Statista 2020

Online retailers also boomed. Amazon shares rose 74%, Shopify 169% and Alibaba 25% this year. Contrast this to traditional store retailers who are rapidly dying. In the US, Macys fell 38% and JP Penny 89% in 2020. In the UK, Marks and Spencer fell 38%, while here in Australia Myer is down 25%. 

2020 was an inflection point in shifting our lives online and we expect the big shift will continue in 2021. 

One area investors should particularly focus on in 2021 is healthcare innovation which we believe is about to explode.

Covid-19 saw the rapid adoption of online healthcare, particularly in China, where leading providers Alibaba Heath and PingAn Doctor are up 153% and 61% in 2020.

Coronavirus has accelerated the growth of China’s online medical platforms

Source: bain.com

Online healthcare offers enormous efficiencies for patients and providers to address minor health issues, and to reduce patient waiting times for more serious cases that require specialist care or hospitalisations.

Leading global technology providers such as Microsoft, Apple and Amazon are entering the sector to offer AI-assisted patient management systems, while the digitisation of patient healthcare records by cloud providers offer growth opportunities for data analytics and storage.

Digital health will be a big focus for Holon in 2021.

3. Start getting your head around Web 3.0 and disruption in financial services and the cloud

The final trend investors need to embrace in 2021 will be disruption to two key areas: financial services and the cloud.

In financial services, the digital asset Ethereum, is a platform many developers are using to create the tools and applications for the new digital financial system. This open-source technology delivers never-seen-before interoperability being a positive force creating greater financial inclusion. This disruption in financial services will impact those businesses that have neither the balance sheet nor vision to pivot their business models to benefit from the new digital financial services ecosystem.

We’re also seeing potential disruption in the cloud services area. Projects like Filecoin are changing how we access files over the internet. Filecoin is the ‘AirBnB of data storage’ – it’s everywhere and everyone can offer available storage in a peer-to-peer model. 

The emerging digital asset ecosystem and next evolution of the internet – referred to as Web 3.0 – is an exciting space that we are watching closely in 2021.

Benefiting from disruption

2020 has been a year of unrivalled change and disruption. We fear disruption because it seems so uncertain. But if 2020 has taught us anything, it is that we are resilient in the face of uncertainty. The way we and innovative people and companies adapt creates immense opportunities. 

Holon will be covering the dynamics of disruption for wealth creation in 2021, including looking closer at the three trends above. We look forward to investors exploring disruption and innovation alongside us for their 2021 investment portfolios so we can all not suffer from disruption but benefit and profit.

To keep across how 2021 unfolds subscribe above and follow us.

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