How is the model portfolio that managers advise for the new year? | Markets

The main promise of profitability for 2021 is in the Stock Market, although not everything goes. The pandemic has shown that there are a series of sectors that have confirmed their future projection, such as technology and health, and that they will continue to be an attractive bet in the new year, and many others whose fate is linked to the economic recovery and that they will not return to benefits with equal intensity.

At BlackRock, the world’s largest manager, they are prudent on the stock market and their strategic position in equities is neutral, in light of high valuations and a challenging environment for generating profits and paying dividends. But it does make a tactical bet on quality American tech companies, which have shown ample resistance this year. They are the trump card in case of disappointment in fiscal policy or in the distribution of the vaccine. And it also relies on cyclical stocks, albeit selectively.

UBS’s stock recipe for 2021 is US midcap stocks, eurozone small- and midcaps, select energy and financial stocks, and consumer cyclicals and industrials. “Overall, we expect nominal returns to average 5% to 8% per year in developed markets (in dollars), compared to 9% over the past 15 years,” adds the Swiss bank. .

Inflation is in no way a threat capable of subtracting real profitability from the stock market in the new year. In fact, the main central banks keep their stimulus at full blast in his absence. For Goldman Sachs, the lack of inflationary pressure is also a reason to bet on equities. “Stock exchanges have registered the highest annual returns in periods in which inflation is very low, below 1% although on the rise,” explains the US bank, which foresees that the global Stock Market will register an increase in earnings per share in 2021 of 34%, compared to the decrease of 20% suffered in 2020.

“As business picks up in 2021, we anticipate a strong rebound in corporate profits. Increased earnings growth is positive for both equities and credit, but provides a more significant tailwind for equity markets. For this reason, historically, equities have generated higher returns during the first stages of an economic cycle ”, insist from Pimco.

The thematic investment will also be another of the guidelines to invest in the Stock Market in 2021, even more relevant after the Covid-19, they point out from Schroder. Climate change, healthcare innovation, urbanization, automation and digitization, relevant issues for years, will continue to set the pace of the world economy.

Sectors: Industry for recovery without forgetting technology

The year of the pandemic has been the triumph of technology in the stock market. After rebounding on average more than 50% in 2020, the top five US tech companies now account for around one-eighth of the MSCI AC World equity index, more than the market in China, the UK and Switzerland combined, they say. from UBS. Despite the explosive rise, managers do not think much of turning their back on the technology sector in 2021, but the bet is decided by cyclical values, the most affected in 2020 and which in the new year will be favored by the recovery of the economy.

“The year 2020 has undoubtedly been the year of ‘stay at home’ and pandemic-proof values, but 2021 may be the year of the recovery of the values ​​most representative of the previous normality,” they point out in the Santander’s private banking division. Thus, companies like Netflix or Zoom would give way to the classics of the industry, chemistry or the automotive industry.
Banking or tourism, the sectors hardest hit by the pandemic, generate more doubts. They are the most sensitive to contagions and the tertiary and services sector will be the last to recover after all. But managers do agree that it will be time to look for opportunities by valuation, in a market in which the gap between growth companies and value companies has widened like never before.

Geographies: The opportunity of the European Stock Market and a weaker dollar

The fondness for technological values ​​will continue to fuel Wall Street but the cyclical bet will give an opportunity in 2021 to the European Stock Market, much more damaged than that of the US by the coronavirus. Barclays is one of the firms that has increased its exposure to European cyclical sectors, overweighting industry, consumer discretionary and also finance. And it also overweight Spain and Italy against France and Germany, that is, the economies where GDP has sunk the most in 2020. Santander sees a more favorable outlook for the European Stock Market, with a more cyclical sector composition, with higher weight of banks, automobile and energy. “This situation may allow investment opportunities to arise, given the desire for investors to rotate,” adds the entity. At BBVA AM they even predict a 15% rise for the European Stock Market in 2021.

At Goldman Sachs, they say they do not have a preference for geographic areas, but on Wall Street they overweight information technology and health, as well as industry and materials. And in Europe it focuses on banking, energy, automotive, raw materials and construction. It also calculates a one-year hike of 22% for the S&P and 14% for the Stoxx Europe 600, in local currency. And the exchange rate will be decisive for the European investor on Wall Street. Experts predict a weaker dollar in 2021, with forecasts reaching a 20% drop.

Emerging: A must-see with China and its Asian orbit

The presence of emerging markets in the portfolio is no longer an anecdote and for 2021 it is a must. The question is no longer whether or not to include doses of these economies but to what extent, once it has been proven that emerging Asians have come out stronger during the crisis compared to the developed world. China, the origin of the pandemic, has been the first major economy to overcome the coronavirus and in 2021 it is expected to grow more than 8%.

“The emerging sphere presents the double advantage of a faster economic recovery and a commendable position in the growth sectors,” they summarize in Carmignac. “Emerging Stock Exchanges may be the big winners. Not just China. but South Korea and Taiwan, “they add from Barclays, where they highlight that these countries have achieved a more effective control of Covid-19. The long-term outlook for emerging markets is more promising, insists UBS, which forecasts that they will offer an average annual return of 9.4%, compared to 4% in the last 15 years, “thanks to lower initial valuations, a more favorable general demographic profile and greater potential for productivity gains ”. Asia is the preferred destination due to the strength of its economies and the technological component, although Latin America, much more hit by the crisis, will also have a weaker dollar in its favor and potential for recovery.

Fixed income: Higher doses of risk, in the shadow of equities

The sovereign debt of developed economies has left unimaginable gains in 2020 thanks to the work of central banks. The precipitous fall in profitability has allowed capital gains due to the rise in prices, although negative yields, or almost, advise against playing the card of this asset in 2021. The minimum coupons invite to take more risk in other assets within the universe of the fixed income and there are niches with higher profitability that are not necessarily dangerous, given the general anesthesia that central bank purchases impose on the market.

At BlackRock, they overweight Asian corporate debt, the result of better containment of the pandemic than in the West, and high-yield bonds and have improved their position to neutral for emerging local currency debt. They also overweight the sovereign debt of the European periphery, despite yields at record lows. At Pimco, the world’s largest fixed income manager, they recognize that fixed income is less attractive than equities but they see opportunities in emerging debt and corporate debt in the US housing market. “We believe that traditional fixed income should continue to be a reliable source of diversification against a growth shock, but low rates and the risk of an inflation shock make it necessary to expand the menu,” they add.

Diversification: Raw materials on the rise and gold as a safe value

Although the Stock Market is the most promising asset for 2021, the mantra of the managers is the diversification of the portfolio, which also includes a dose of gold, which in 2020 has proven its worth as a refuge, and of raw materials, which they expect its bullish moment in the heat of the recovery of the economy. Goldman Sachs remains neutral in raw materials in the shorter term but for a 12-month horizon it will overweight them, in the context of what it describes as “a new and structural bull market.” The recovery in demand will bring immediate price increases: it sees increases in copper, a valuable raw material for the semiconductor industry, and Brent oil at $ 65 between the end of 2021 and early 2022, compared to 51 end of 2020 dollars. UBS highlights that commodity prices have a wide margin of recovery and forecast that in the next 15 years the general commodity indices will yield around 5% in an annualized rate, driven by strong returns provided in energy. His estimate for Brent at the end of 2021 is $ 60 a barrel.

The luck of gold, which has risen 24.5% in 2020, will be linked to inflation expectations. Its great asset in the future is to preserve the real profitability of the portfolio and consolidate itself as an alternative to the more conservative debt. And if the script of the vaccine and the pandemic were to twist in 2021, it is a mandatory asset in the portfolio.

Illiquid assets: Venture capital funds to strengthen the portfolio

“Traditional investment strategies will be challenged as no asset class today offers a comprehensive solution to different financial needs of clients.” Thus they summarize in Santander Wealth Management & Insurance the future challenge in the search for profitability. Venture capital funds are emerging as a new ingredient, although at the price of their illiquidity and of being reserved for an above-average risk and equity client profile. “We see private markets playing an important role to give resistance to the portfolio in a world in which sovereign bonds may no longer serve to diversify,” they point out from BlackRock.

The bet on venture capital supposes the incursion into unlisted assets. These vehicles allocate their resources to the acquisition of companies in which they observe a clear potential for improvement and in which they apply deep processes of change to obtain a return on investment. In a moment of crisis like the present, they appear in fact as a lifeline for companies in serious difficulties. Over the past 20 years, equity funds have generated a return of 11.3% on an annualized basis, compared to 5.9% for the S&P 500. “The best vintages for this investment come in the aftermath of a major recession ”They remember in Santander.


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