2021 Investment Outlook Webcast Summary and Replay

We hope you were able to join us for our 2021 Investment Outlook webcasts. A summary of both sessions along with the replays for those that were unable to join us can be found below.

Day 1 - Tuesday, 24 November 2020

Summary: Outlook 2021 - macro and financial markets

The impact of COVID-19 is expected to cause the deepest contraction in global output seen since the second world war. However, with a vaccine seemingly on the horizon, activity should recover strongly from a low base with substantial monetary and fiscal stimulus aiding prospects. We anticipate economic growth of 5.4% in 2021. Monetary stimulus has driven equity market performance. That said, equity valuations appear expensive, with forward earnings multiples at similar levels to those seen during the ‘dot-com’ technology bubble. Further upside may be limited at an index level.

The next decade is also likely to entail lower returns and more volatility than seen in the last. This suggests that a diversified portfolio, perhaps including gold, hedge funds and private equity, may be called for. Fixed income can also play a valuable role, despite its recent positive correlation with equities. In any equity bear market, bonds tend to provide a positive return. Further income can also be generated through spikes in volatility as the global economy recovers.

Key points:

• The contraction in the global economy, as a result of containment measures, has been four times the magnitude of that seen in the 2008 global financial crisis.
• Output is expected to recover strongly next year. But, there will be longer term consequences from an unprecedented amount of fiscal stimulus seen this year, amounting to approximately 11% of global output.
• While absolute equity valuations might seem expensive, on a relative measure they still look attractive. A focus on high-quality companies, looking at opportunities across regions and sectors, may offer much value.
• The next decade is likely to see lower returns and higher volatility. Portfolios will benefit from further diversification across gold, private equity and hedge funds.
• Fixed income provides income opportunities and can act as a hedge against market downturns.

Day 2 - Wednesday, 25 November 2020

Summary: Outlook 2021 - strengthening sustainable investing

This year has been dominated by COVID-19 and its impact has caused a sharp contraction in global output. The pandemic has also been associated with “resilience” and environmental, social and governance (ESG) issues. This has arguably been the first real test of ESG as a financial factor and on the resilience of portfolios. The events of this year may have strengthened investors views on the potential advantages of ESG factors in two ways. Especially on the social side. There have been many examples of companies behaving responsibly to all their stakeholders since COVID-19.

But just as importantly, collaboration in technology sharing and across companies has helped to weather the effects of the virus. With investors facing a period of lower returns, the long-term growth prospects offered by investing sustainable may be one avenue worth considering.

Key points:

• In selecting high-quality companies for a diversified portfolio in tough macroeconomic times, investors might consider the likely material ESG factors that can help to protect and grow their portfolios.
• With returns from traditional approaches looking challenging in the short term, it may be time to concentrate on longer term options. Addressing climate change, with renewed focus from governments and companies likely in 2021, can offer attractive growth opportunities, while protecting the planet.
• Investors are increasingly paying attention to climate change and biodiversity risks. Next year is likely to see renewed focus and a step change in these issues.
• Within ESG, there are still various areas for development, from executive remuneration and corporate culture to diversity and inclusion. The increasing incidence of executive pay being linked to ESG goals is an encouraging sign that it’s moving up the board agenda.
• ESG factors can help to improve long-term returns while providing a valuable insight on non-financial information that can have a significant impact on the long-term financial health of a company. Sustainability is not just a ‘nice to have’, it can be a key driver for financial returns.