Fund managers and analysts have been reflecting on 2021 and the outlook for investors and are generally optimistic, largely due to the emergence of a vaccine against covid-19.
“I’m generally positive for 2021,” said Darius McDermott, managing director of FundCalibre. “We have more of a vaccine in sight, Brexit will be completed one way or another and we have an American president who is likely to be less destabilizing.
“Yes, we have mountains of debt, a global recession and we are bound to have some hiccups along the way…but some of the uncertainty has been lifted, we know what needs to be done to enable a recovery and governments and central banks around the world support us.
“To me, that means 2021 should be good for risk assets – in both stock and bond markets.”
Investment fund managers surveyed by the Association of Investment Firms also cited the worldwide rollout of the vaccine and the threat of a decline in covid-19 as the biggest cause for optimism next year, 38% stressing this positive. However, the AIC says managers are also optimistic about the potential for technology to drive economic growth, with that and a value-to-growth rotation each receiving 14% of responses.
Investment firm executives believe emerging markets will outperform in 2021: Although many developing economies have been hit hard by the pandemic, 24% of executives believe emerging markets are most likely to reward investors l next year, followed by the United Kingdom (19%) and the United States (14%).
The managers are also bullish on emerging markets and the UK longer term. Over five years, emerging markets and Asia-Pacific ex-Japan were seen as the most attractive opportunities, each receiving 19% of the votes, with the UK and US tied for second with 14% of the votes. answers each.
McDermott is also the emerging markets that benefit investors. “I think the US dollar will be weaker for quite some time,” he said. “This will benefit Asia and broader emerging markets. Asia in particular has generally handled the pandemic well and has just concluded a new cross-regional trade agreement. Calmer relations between the United States and China will also help. Developed markets should also be positive, but not to the same extent as we have seen in recent years.The only exception could be the UK – if we get a positive Brexit result, it will have a lot to do with its global peers.
McDermott suggests funds to consider include: Guinness Emerging Markets Equity Income, Fidelity Asia Pacific Opportunities and AXA Framlington UK Mid Cap
Carlos von Hardenberg, Director of Mobius Investment Trust, said: “Over the next few years, we expect significant positive economic development, particularly in Asia and Latin America, as well as in Africa. The past year has led to an acceleration in healthcare spending and investment, sparked a new push towards distance learning and related technologies, and underscored the importance of e-commerce as a new brick and mortar. Asia and many emerging markets have made impressive progress in the development of proprietary technologies, but also towards a more sustainable and more environmentally and socially acceptable industry. We believe that a rotation into emerging markets will lead to a normalization of the steep discount that emerging markets are trading at today, and that strong corporate earnings will be accompanied by improving macroeconomic tailwinds.
Top Performing Sectors
Nearly a fifth (19%) of investment company executives believe healthcare equipment and services will be the best-performing stock market sector in 2021. Over five years, executives favored travel companies and leisure to outperform, with 19% nominating the sector. recover strongly from a disastrous 2020.
Andrew Bell, Managing Director of Witan Investment Trust, said: “The future looks very positive, with revolutions in information technology and medical science transforming lives for the better. Investment in infrastructure will help drive the recovery from the economic shocks of 2020. Asian consumption, technology and biotechnology remain key long-term themes. In the near term, banks and the travel and leisure sectors are expected to rebound strongly as investors make a rational analysis of their outlook rather than extrapolate dire near-term trends from 2020 onwards.”
McDermott advises a small target, not a big one: “Big companies have outperformed lately, helped in large part by big tech names, which have been responsible for around 70% of stock market gains this year in some countries,” did he declare. “Small companies, which have paid the price for investor uncertainty in 2020, have relatively attractive valuations and should do well towards a recovery.”
And here he highlights ASI Global Smaller Companies, Federated Hermes Global Emerging Markets SMID Equity and BMO Global Smaller Companies
And McDermott suggests that commodities and infrastructure will take advantage of the big tech players. “Big tech companies will continue to do well because they have momentum behind them in the form of structural change,” McDermott says. “But I don’t expect the same dominance as in 2020. Instead, commodities and infrastructure look interesting. Both should benefit from the economic recovery. While oil has already potentially rebounded, metals will be key, especially as the push for electrification and renewables gathers momentum.
“Funds to consider, he says, are Ninety One Global Gold, First Sentier Global Listed Infrastructure and VT Gravis UK Infrastructure Income.
Rising interest rates are seen by investment firm managers as the biggest threat next year (19%), followed by high equity valuations (14%).
According to the AIC, despite the economic fallout from the pandemic, 90% of managers believe UK interest rates will not turn negative in 2021 and 71% believe it is “unlikely” or “very unlikely” that we were witnessing a significant increase in inflation. However, over three years, 77% of managers believe that a significant rise in inflation is likely or very likely.
Interest rates will also impact growth and value prospects.
“If November taught us anything, it’s that investors shouldn’t completely abandon value strategies,” McDermott continued. “The spin caused by early vaccine news reminded us why it doesn’t make sense to be ‘all-in’ in one style. While we believe growth will always do well in an environment low interest rates, having some value in a portfolio could also be beneficial.
For value, he suggests TM CRUX UK Special Situations, Invesco Asian and Schroder Global Recovery
And for bonds, he suggests corporate, not government bonds.
“Government bonds in developed countries offer little yield and little capital on the upside. Inflation could be on the horizon – maybe in 2022 – which could also make a bad situation worse. good quality, high yield bonds, which offer better yields and again should do better in a recovery environment Emerging market bonds also have more room to maneuver as interest rates are higher.
Funds to consider, he says: Baillie Gifford High Yield Bond, BlackRock Corporate Bond and M&G Emerging Markets Bond
Where will the FTSE 100 end up in 2021?
Investment company executives are optimistic about the outlook for global stock markets, with 67% believing they will rise in 2021 and just 10% believing they will fall. Almost two-fifths of managers (38%) believe the FTSE 100 will close between 6,500 and 7,000 next year. A third (33%) were more optimistic about the UK’s top-tier index, with 7,500-8,000 (19%) and 7,000-7,500 (14%) the next most popular picks.
Finally, the AIC reports that in a year when the pandemic has impacted everyone’s life, 62% of managers said their investors’ interest in ESG had increased due to covid. -19.
Steve Cook, portfolio manager of Sequoia Economic Infrastructure Income Fund (SEQI), said: “There is no denying that 2020 has been a difficult year for all of us, with widespread economic uncertainty gripping markets. Looking to next year, while there are still many unknowns, one thing we can be sure of is increased attention to ESG. The covid-19 crisis has accelerated the transition to sustainability, with businesses across the country calling for a green recovery, and these issues will no doubt be at the top of investors’ agendas. At SEQI, we look forward to continuing to implement our ESG policy and playing the full role we can in enabling the transition to a low-carbon world.
Further reading: A Study of the Emerging Markets Landscape for Investors