2021: time to be ‘risk-on’ with equities and bonds

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.”

Emerging not developed

“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.”

Funds to consider: Guinness Emerging Markets Equity Income, Fidelity Asia Pacific Opportunities and AXA Framlington UK Mid Cap

Small not large

“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.”

Funds to consider: ASI Global Smaller Companies, Federated Hermes Global Emerging Markets SMID Equity and BMO Global Smaller Companies

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:

Growth and value

“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.

Funds to consider: TM CRUX UK Special Situations, Invesco Asian and Schroder Global Recovery

Corporate not government bonds

“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.”

Funds to consider: Baillie Gifford High Yield Bond, BlackRock Corporate Bond and M&G Emerging Markets Bond

Read more about the case for emerging market bonds and equities here

Commodities and infrastructure not tech

“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.”

Funds to consider: Ninety One Global Gold, First Sentier Global Listed Infrastructure and VT Gravis UK Infrastructure Income

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.