2020 has been rife with unprecedented events, and markets have seen volatility the likes of which investors have very rarely seen. But the opportunities that emerge are similarly huge, for those that want to take advantage.
2021 will hopefully see less volatility and there are new investment opportunities triggered by global events and governments’ reaction to the pandemic.
While the impact of lockdowns is likely to weigh on markets at the start of the year, and GDP growth will remain depressed for the moment, markets are forward-looking and will price themselves above the short-term noise to better times ahead.
In the UK Brexit news has weighed heavily, but the end of 2020 brings a glimmer of hope to investor. Once a final deal (or no deal) is official, companies and investors can make concrete plans. Lack of clarity is a huge issue for UK plc’s so markets could benefit from even a small increase in interest from international investors ready to come back to the British Isles.
Elsewhere, a new President in the White House might come as a relief for some, but whether President Biden be good for US markets remains to be seen. Many are wondering if and when he might raise taxes, or even be able to get further stimulus packages the US needs through Congress. Either way, areas of the US market look expensive, as they have for years.
Further to that, tensions will most likely remain between the US and China, causing even more problems for the region. Trade between the two countries is critical to global market sentiment and there is no clear indication yet what Biden intends to lead with when it comes to the Asian superpower.
China has responded well to the virus and is well placed to continue its growth. The regions should also benefit from a weaker US dollar and investors returning to riskier assets. Many other emerging market regions were sheltered from the worst of the virus, and some even manage to avoid lockdowns that became omnipresent in Europe and elsewhere.
Investors should trust the recovery in 2021. Although there will be doubters, the global recovery is sustainable, synchronous and well supported by government and central bank policy. The first half of 2021 will be hard but if we look ahead to later in the year, there are many opportunities.
Below Adrian Lowcock, Head of Personal Investing at Willis Owen, looks at some potential fund picks for investors for 2021 which standout as key investment calls.
Merian UK Smaller Companies – Smaller companies in the UK, although packed full of growth names, have been unloved by investors for years now, with many looking to avoid the UK – and in particular domestic stocks – on concerns over Brexit and political gridlock. A resolution to Brexit should unlock some value.
Merian has one of the most highly regarded small and mid-cap teams, headed by Dan Nickols who is the manager of this fund. Companies must demonstrate one or more of the following characteristics to be included in the fund: the ability to grow earnings faster than the market average for an extended period; the scope to generate a positive surprise; or the potential to be re-rated relative to the market.
A pragmatic approach is taken to valuation, with various ratios and timescales used depending upon the situation. This flexible approach allows growth, value, and recovery companies to be held, but the portfolio has tended to show a growth bias.
Somerset Global Emerging Markets – Manager Edward Robinson employs a style which focuses on quality companies with healthy balance sheets, high returns on equity, strong cash flow and sustainable margins. He is prepared to pay a higher price for these characteristics.
The approach means the fund is likely to perform well in more difficult market conditions, while it may lag behind during momentum driven rallies in technology shares that do not meet the investment criteria.
FSSA Asia Focus – Martin Lau, who manages this fund, applies a tried-and-tested company selection process, which looks for quality businesses that deliver sustainable growth at attractive valuations. The fund invests predominantly in the Asia Pacific region, though it can invest as much as 20% elsewhere.
Lau adopts a pragmatic medium- to long-term investment approach with a flexible style that will adapt to prevailing social and economic conditions. Company visits are of paramount importance. Capital preservation is considered to be the foundation for long-term capital gains, so the fund aims to produce an absolute return with a sensible balance between risk and return. We believe the rare Morningstar gold rating is well-deserved.
Man GLG Undervalued Assets – Henry Dixon and co-manager Jack Barrat believe they can add value by analysing company balance sheets to understand a business’ true real-world assets and liabilities. They seek to identify two types of stock: those trading below their view of the company’s value and those where the company’s profit stream is being undervalued relative to the cost of capital.
The portfolio has a clear bias to the value style but it does include elements of quality and positive earnings momentum. We consider Dixon has demonstrated his ability to consistently execute his investment process with discipline and care.
Blackrock Gold & General – The fund gets its exposure to gold and other precious metals through investment in companies in the space. Co-managers Evy Hambro and Tom Holl conducted detailed commodity and company research. Close attention is paid to liquidity and risk.
At the company level, valuation analysis is rigorous and aims to find companies with the best exposure to commodity prices within an acceptable level of risk. This leads to an emphasis on larger producers with quality assets and ability to grow their production in a cost-effective way.