Clearly, no one has a crystal ball that can predict how the stock market, or any part of it, will perform over a period of time. After all, in March 2020, who would have predicted that the market would have ended the year whore than where it started?
That said, there are some stocks that have had the biggest benefits of the home economy, and others that could benefit more than others, as the COVID-19 pandemic (hopefully) begins to decline in 2021. There are some ETFs that can outperform index funds significantly more than the S&P 500 this year, and here are three that I’m very optimistic about.
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One of the best performing sectors in 2020
Real estate was one of the worst performing parts of the stock market in 2020 Vanguard Real Estate ETF (NYSEMKT: VNQ) achieved a negative total return of 4.6% for the year, which performed dramatically below the 18% total return in the S&P 500.
There were certainly good reasons for the poor performance. Many investment trusts, or REITs, own properties that depend on people being willing to go to places – think hotels, shopping malls, shopping malls, etc.
However, REITs could also be among the biggest beneficiaries as the pandemic (hopefully) comes to an end in 2021. There is a huge pent-up demand for traveling, shopping and spending money on experiences, and it can give a big boost. to the fixed sector.
Large stocks rose in 2020, while very small capital remained behind
The second index fund that I think the market can beat in 2021 is the iShares Russell 2000 ETF (NEWS: IWM).
The largest U.S. companies mostly held up well during the pandemic. appeal (NASDAQ: AAPL) saw a strong demand for its products, Microsoft (NASDAQ: MSFT) did not experience much sales, and Amazon (NASDAQ: AMZN) was one of the biggest beneficiaries of the retail disruption.
However, most of the so-called ‘reopening stocks’ that can benefit the most from returning to normalcy are not one of the largest companies in the market. Think of hotel supplies like Ryman Hospitality Properties (NYSE: RHP), entertainment supplies such as Dave & Bustersay (NASDAQ: PLAY), and shopping malls such as Tanger Factory Outlet Centers (NYSE: SKT). (Note: all three of these combined is about 0.3% of Apple’s size.)
Of course there is some large companies that could benefit from the reopening. Marriott International (NASDAQ: MAR) is one name that comes to mind. But the point is that the world of small capital reopens full of stocks, while the world of mega-capital is excessively small.
Banks could benefit from reopening
Ultimately, the financial sector is another sector that has been hit in the pandemic, so I think the Financial Select Sector SPDR ETF (NEW: XLF) can perform better if the world gradually returns to normal.
For two very good reasons, banks were hit hard by the pandemic:
- Although banking is complicated, the most important way banks earn their money is by charging interest on loans. With a record-low interest rate environment, bank profits were under pressure.
- The pandemic creates an increased level of default as unemployed lenders may get into trouble paying off their loans.
However, both may change after 2021. We are already starting to see interest rates tap higher, and I would expect more of the same as the pandemic gradually ends. And as unemployment begins to decline toward pre-pandemic levels, the default risk lenders face is likely to decline.
Even if it’s an excellent long-term choice, no matter what happens in 2021
As a final thought, although I think all three of these have a good chance of beating the market in 2021, I am not saying that you intend to keep it for a year and then make money. All three are excellent index funds that can create long-term wealth in your portfolio.