We believe we are in an environment of low yields, uneven growth, accelerated disruption and societal and environmental imbalances. This requires investors to think differently. We believe equities can play multiple – and increasingly important – roles across all portfolios as investors seek solutions to these challenges.
In this outlook we discuss our top ideas for equity investments in 2021:
- Actively manage disruption: A forward-looking active strategy is the best way to invest early in the next disruptors – and avoid companies vulnerable to disruption. As disruptive trends accelerate, market cap-weighted indices can leave investors behind – and exposed to high concentration risk. For some investors, passive implementation may, in fact, be too aggressive.
- Seek growth outside of US megacaps and in global megatrends: We believe technological innovation, the new age consumer, the future of health care, and sustainability will continue to disrupt the investment landscape. Investors need to look beyond US megacap technology stocks to capture key trends in innovation across all sectors, market capitalizations and regions, including in the higher growth emerging markets.
- Re-evaluate high-yielding equities and value stocks: Yield remains scarce – except in the equity markets, where the percentage of stocks at historically high yield spreads versus government bonds is close to a record level. Dividends have stabilized, valuations are cheap and an economic recovery is likely to favor value stocks. For high-yielding equities, we believe an active approach focused on yield sustainability (not necessarily the highest yield) is prudent in an environment of accelerated disruption, where the highest yielding names tend to be the riskiest.
- Invest with an ESG (Environmental, Social and Governance) mindset: As ESG factors may matter more to investment success since governments, corporations, and consumers care more about it, we believe the gap between the ESG leaders and laggards will continue to widen. We believe ESG investing favors an active approach that uses fundamental analysis and corporate engagement to drive positive change and counter the limitations of available data.
We expect macroeconomic and earnings growth to broaden across sectors, market capitalizations and regions – but it will not be evenly distributed. We encourage investors to seek out growth in every corner of the global equity market while staying disciplined on valuation.