This Wednesday, January 20th, as Joe Biden was preparing to take over as the 46th President of the United States, RankiaPro hosted it’s first Conference Call of 2021. We believe it was quite fitting to discuss portfolio drivers for the upcoming 12 months while perhaps the largest influence of them all was set to take place. Joe Biden’s presidency will undoubtedly have far-reaching effects on markets and the global economy as a whole.
To weigh in on the topic of ‘Portfolio Drivers in 2021’ we had the honor of hosting three investment professionals whose expertise in fund analysis and selection can provide valuable insight for investors looking to re-adjust their portfolios this coming year.
Anthony Dalvin, Multi-Asset Fund Manager at Amilton AM, Paris Jordan, Fund Selector and Founder of Virtuvest, and Ernst Knacke, Head of Research at LeifBridge and Shard Capital, touched on a broad range of factors that are likely to shape the investment landscape for the coming year, ranging from important macro issues like lower-for-longer rates and further economic shutdowns as they struggle to contain the virus, to dominant role ESG will play, not only on a principle-level, but directly at an asset class level.
Anthony Dalvin, Multi-Asset Fund Manager at Amilton AM
For Anthony, the 2021 investment landscape comes down to four glaring macro factors: 1- loose monetary policy and, 2- loose fiscal policy, which lead to 3- negative real yields, and which adds 4- downward pressure on the USD. Investors should keep a close eye on Fed action, says Anthony, because their actions will impact the dollar, which drives global markets. He points to a high probability that we are now in a down cycle for the USD.
According to Anthony, these macro themes lead to two unique opportunities for investors: outperformance in Emerging Markets due to dollar funding costs in local currency terms, and in commodities, specifically the rise in industrial metals like copper, which Anthony points out is used in all renewable energy technologies.
After years of capital outflows from Emerging to Developed markets, leading to low valuations, then you have the perfect setup for outperformance in Emerging Markets this year.
Anthony Dalvin, Multi-Asset Fund Manager at Amilton AM
Paris Jordan, Founder of Virtuvest
Paris, on the other hand, is optimistic that a rather positive vaccine rollout will help keep equity markets high, and lead to some return to normality. The market-wide expectation that governments will continue to step-in and provide liquidity if needed, says Paris, provides additional reassurance of a market back-stop, and limiting downside risk.
The election of Joe Biden will provide the biggest long-term boost for markets, believes Paris. At the very least, the elimination of much of the geo-political uncertainty will provide for increased investor confidence. At the best, the 180 degree shift in policy in regards to the USA’s contribution to the fight against climate change, which Biden plans to implement as soon as he takes over, will help drive ESG to the top of the global agenda for 2021. Paris mentioned that between regulation that has already been put forward by the EU, to ESG issues that the global pandemic brought to the forefront, we should expect to see the ESG theme accelerate throughout 2021.
“ESG is impacting all asset classes, not just because of client demand, but also because of regulator input which has had a rolled-down effect and is bound to be a hot topic of this year.”
Paris Jordan, Fund Selector and Founder of Virtuvest
Ernst Knacke, Head Of Research at LeifBridge and Shard Capital
Ernst begins by pointing out that the management of downside risk, or capital preservation, is just as important to him and his firm as the focus on maximizing long-term returns. This is important to highlight in today’s market conditions, says Ernst, because markets are not cheap. In fact, they are quite expensive. These high valuations are not necessarily driven by optimistic growth outlooks, but rather by historically low rates and government support. When analyzed in a vacuum, it would be a warning sign for investors, but when evaluated against alternatives like bonds, Ernst’s opinion is that the opportunity cost points to equity.
Two investment opportunities that Ernst highlights are the recently un-loved and over-sold UK small caps, and the industrious metal Platinum, which acts as a great capital preservation strategy.
“There are few thematic trends that have benefited from asset price inflation and fund flows to the extent that ESG has.”
Ernst Knacke, Head of Research at LeifBridge and Shard Capital
