Q3 2021: the recovery continues
At first glance, the top performing funds on FundCalibre this quarter are an eclectic bunch, with...
After a year like 2020, it seems almost foolish trying to predict what 2021 could hold in store. But it’s that time of year and we’re being asked our opinion – so here are the views of FundCalibre’s managing director, Darius McDermott:
“I’m broadly positive going into 2021. We have more than one vaccine in the offing, Brexit will be completed one way or another and we have a US president who is likely to be less unsettling.
“Yes, we have mountains of debt, a global recession and we’re bound to have hiccups along the way… but some of the uncertainty has been removed, we know what needs to be done to enable a recovery and, around the world, both governments and central banks are being supportive.
“To me this means 2021 should be good for ‘risk-on’ assets – in both equity and bond markets.”
“I think the US dollar will remain weaker for some time. This will benefit Asia and broader emerging markets. Asia in particular has generally handled the pandemic well and has just struck a new inter-regional trade agreement. Calmer relations between the US and China should also help. Developed markets should also be positive, but not to the same extent as we have seen in recent years. The one exception could be the UK – if we get a positive Brexit outcome it has a lot of catching up to do with its global peers.”
“Larger companies have been outperforming of late, helped in no small amount by the big tech names, which have been responsible for some 70% of stock market gains this year in some countries. Smaller companies, which have paid the price of investor uncertainty in 2020, have relatively attractive valuations and should do well going into a recovery.”
Peter Ewins, manager of BMO Global Smaller Companies trust, tells us more about why smaller companies have lagged their larger peers in recent years and discusses whether they can outperform in 2021 in this podcast:
“If November taught us anything it’s that investors shouldn’t write off value strategies completely. The rotation caused by the first vaccine news has reminded us why it’s unwise to be ‘all-in’ one style. While we believe growth will still do well in a low interest rate environment, having some value in a portfolio could reap rewards too.
“Government bonds in the developed world are offering little yield and little capital upside.
Inflation could be on the horizon – perhaps in 2022 – which could also make a bad situation worse. I prefer investment grade and high yield bonds, which offer better yields and again should do better in a recovery environment. Emerging markets bonds also have more room to manoeuvre, as interest rates are higher.”
Read more about the case for emerging market bonds and equities here
“The big tech companies will continue to do well as they have momentum behind them in the form of structural change. But I don’t expect the same dominance as was shown in 2020. Instead, commodities and infrastructure look interesting. Both should benefit from economic recovery. While oil has potentially already had its bounce, metals will be key, especially as the push for electrification and renewable energy gathers pace.”