It seems, that you can go along without aging for 10 years, and then experience a year that ages you 10 or more. 2020 felt like one of those years. Of all the contingencies we planned for, somehow, a global pandemic was not one of them. Fortunately, the technology improvements that we had been steadily achieving were exactly what would be required for us to make the necessary adaptations to keep BF&A functioning in a world dealing with Covid-19. The newest members of our team have already been with us for over a year, and despite the pandemic, our office continues to flourish. Our team has continued to obtain new credentials and certifications. Some were married and others bought new houses, and life went on, as it always does.
2020 was a challenging year for many businesses and economies around the world. As we begin 2021, we look forward and ask ourselves, what is next? Global economies have begun to recover from the worst effects of the pandemic, and we expect this trend to accelerate as vaccines are distributed to citizens. Financial markets were able to recover quickly because central banks responded faster to this crisis than any other in history by lowering interest rates and introducing stimulus payments to their respective economies. Low rates make it less expensive for companies and individuals to gain access to money, which in turn supports the economy. These easy money policies are expected to continue and should act as a tailwind for investments through 2021.
The Coronavirus has changed the world forever. Thankfully for disciplined long-term investors, change creates opportunity. Companies with strong online business models were already positioned well for growth, but with the need to social distance and to remain home in 2020, these companies have further separated themselves from their competition.
Some things, however, cannot be digitized. People love travel and to have new experiences. As we stayed home to avoid exposure to the Coronavirus, we continued to dream about when we would be able to vacation again. Global pent-up demand should lead to substantial opportunity in the travel and entertainment industries, as immunization occurs throughout the world. On October 10th, 2020 Quantas Airlines offered a flight for 150 passengers. The flight left from Sydney, Australia and landed in Sydney, Australia seven hours later. This flight sold out in 10 minutes and is just one example of our “stay home” fatigue, and consumers desire to travel again once it is safe. Domestic air travel in China is another good indicator of future global trends. China is 4-6 months ahead in response to the pandemic and can be a glimpse at what to expect in the United States. The chart below shows that as of the end of October 2020, domestic travel in China was practically unchanged from 2019. As the US continues to recover from the worst of the pandemic, travel will pick up which will have a positive impact on hotels, airlines, tourism, and energy.
Shopping and travel are not the only industries that have been changed by the events of 2020. In an earlier newsletter, we highlighted the positive impact that digitization has had on healthcare. The simplicity, convenience, efficiency, and ultimate safety for health care providers that telemedicine offers are just some of the many benefits. Revenues from home monitoring devices are expected to nearly quadruple by 2024, and the market size for telemedicine is also expected to nearly quadruple in size by 2026. This highlights the need for healthcare and all businesses to be adaptable as consumer behavior continues to change.
Low interest rates can be good for the economy, but certainly make it more challenging for us to find consistent sources of income for those that need it. One area our firm has focused on during periods of low interest rates are dividend paying companies. Those companies that have paid consistent dividends lagged throughout 2020 because investors were concerned about the sustainability of dividend payments if consumers were not spending money. This is one of many reasons why having the right active managers is important for portfolio construction. They have already screened these dividend paying companies for sustainability through any environment. We are already seeing dividend paying companies begin to rebound as expectations for a return to a normal economy continue to rise. Another way we continue to add income to many portfolios is through the inclusion of tax-exempt municipal bonds. We are currently in a unique environment where municipal bonds are paying higher yields than their taxable counterparts, as the chart below illustrates. Where appropriate we will use these bonds to add stability and consistent tax-free income.
Moving forward, we see many things about the investment landscape that give us hope. Some issues that were causing much of the uncertainty of last year are beginning to clear. Our election was decided and now we await possible tax and policy changes to determine how we may need to adapt our investment approach. More is known about Covid-19 and more solid strategies are forming about how to vaccinate the public. We are optimistic that we are approaching the end of the pandemic which should lead to a rapid recovery for many businesses that suffered throughout last year.
We are looking forward to the day when once again, we can greet you at the front door of our office with a visible smile, a hug and a tail wag from Boon. We wish you a happy, healthy, and prosperous year.
All the best-
— Priscilla "Cilla" McKinley
President - Brent Forrest & Associates LLC
*Brent Forrest & Associates, LLC may discuss and display, charts, graphs, formulas, and specific holdings which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. These are offered with limited information and should not be used on their own to make investment decisions.