2020 was a choppy year in the financial markets. One of the stand-out events was the stock market crash in March. This saw the FTSE 100 fall below 5,000 points for the first time since 2010. Within the FTSE 100 index, Lloyds Banking Group (LSE: LLOY) also struggled. Lloyds shares fell substantially from the 63p mark it started 2020 at, suffering from the issues thrown up by the pandemic. If I’d made an investment of £1,000 a year ago, how would it look at the moment?
An accurate picture?
If I’d invested a year ago in the middle of February, I’d have picked up Lloyds shares around the 55p level. It’s currently trading at the 38p figure. This represents a 31% fall over 12 months, meaning my £1,000 would be worth £690.
Is this an accurate picture, though, given the stock market crash I mentioned happening in March? If I’d invested a month later, I’d be getting 32p a share. Now I’d be sitting on a gain of 19% instead. Ultimately, hindsight is a wonderful thing. This time last year, I didn’t know that a stock market crash of that severity was on the horizon. I can’t time the markets to perfection and always buy at the lowest price during any period.
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In fact, I do feel the slide in Lloyds shares over the past year is an accurate representation of the share price. This is because if we pull back and look over the past five years (or longer) the trend has been down. So if I re-ran this experiment using a two-year or five-year horizon, I’d be holding onto a loss right now in the same way.
Will Lloyds shares make back my losses?
Personally, I think in the long-term that Lloyds shares will make it back to 55p, or even higher. The backdrop for the bank into 2021 is better than 2020. Impairments for bad loans can now be reduced. The forecasted economic growth later this year should aid profitability as credit card spending and corporates start to increase activity. But the drag of low interest rates and the continued high costs of the transformation to a more digital bank I think will hinder the recovery.
As such, if I was holding onto the £1,000 investment in Lloyds shares, I’d sit tight. But if I wasn’t invested, I think there’s much better opportunities out there. If I want to stick to the banking sector, I’d go for Barclays. I recently wrote a piece covering the fresh 2020 results from earlier this week. Barclays is a more diversified bank than Lloyds, shown by the impressive results from its investment banking arm. If I contrast the investment value of my £1,000, I’d be down 13% if I’d bought into Barclays instead of Lloyds. Still a loss, but a much smaller one!
Barclays isn’t perfect either, and I could make a good argument that Lloyds is better positioned to benefit from a UK recovery. This is due to the growth being driven from the man on the street, a sector that Lloyds has the biggest hold on in the UK. Ultimately, Lloyds shares could be in for another choppy year, whatever direction that may be!
