I’m encouraged by the current investment environment and I think 2021 is set to be an excellent year to invest in a Stocks and Shares ISA. The rollout of Covid vaccines has begun and the beginning of the end of the pandemic is in sight. Although it could take many months to vaccinate enough of the population to suppress the virus, stock markets may try to look forward and anticipate the reopening of economies.
But I reckon the Stocks and Shares ISA winners of 2020 may not be the leaders in 2021. The stock market crash in March reversed aggressively and quickly in some sectors. For example, the technology sector benefited from work-from-home orders. By contrast, the travel & leisure sector suffered significant losses in 2020 as hospitality venues were forced to temporarily close. Stocks in depressed sectors could bounce back hard in 2021, in my opinion.
Where I’d invest for my Stocks and Shares ISA
In addition to the pandemic, UK shares suffered for other reasons. Stocks were marked down over the past few years due to uncertainty around Brexit and the future relationship with the European Union. As such, I’d say the UK could be one of the cheapest developed economies in the world.
That’s not just the case in the travel & leisure sector either. The UK is home to very many of high-quality listed companies in which I’d happily invest for my Stocks and Shares ISA. Uncertainty surrounding the UK’s relationship with the EU could be settled soon with some form of deal. This would be great news for UK shares.
In addition, I would gain some exposure to US stocks. Just recently the US Federal Reserve indicated that it’s “committed to using its full range of tools to support the US economy”. I’d say that accommodative monetary policy from the world’s largest economy tends to be positive for large-cap US stocks.
Where would I invest £20k?
So, for a £20,000 investment in a 2021 Stocks and Shares ISA, I’d put most of it in a selection of UK funds and investment trusts. I like to diversify and spread my risk, so I don’t have all of my eggs in one basket. As such, I would split the £20,000 into four sections. First, I’d pick three funds and invest £5,000 in each to total £15,000.
I like Polar Capital Technology Trust, Blackrock Smaller Companies Trust, and JPMorgan Emerging Markets Investment Trust. All are available at a discount to their net asset values (NAV). This selection also diversifies across several geographical areas and sectors.
Next, I would invest the remaining £5,000 across five of my favourite shares that I think have the most potential. I like to invest in shares of high-quality businesses, with strong returns, decent margins and little debt. As such, for my Stocks and Shares ISA in 2021, I would consider Games Workshop, Ergomed, Volex, Next and Boohoo.