Investment Outlook 2021

After the roller coaster ride of 2020, the question on many investors’ minds is what could 2021 hold in store?

More volatility? A value rotation? The bursting of a tech bubble? Given the unthinkable events of this year, it seems almost foolish trying to predict what will happen in 2021.

But it’s that time of year and we’re being asked our opinion – so here are the views of Chelsea’s research team:

General outlook

We are broadly positive going into 2021. We have more than one vaccine in the offing, Brexit will be completed - one way or another - and we have a US president who is more likely to use diplomacy than twitter to negotiate.

Yes, we have mountains of debt, a global recession and we’re bound to have hiccups along the way… but some of the uncertainty has been removed. We know what needs to be done to enable a recovery and, around the world, both governments and central banks are being supportive.

To us this means 2021 should be good for ‘risk-on’ assets – in both equity and bond markets.

Emerging rather than developed markets

We believe the US dollar will remain weaker for some time. This will benefit Asia and broader emerging markets. Asia in particular has generally handled the pandemic well and has just struck a new inter-regional trade agreement. Calmer relations between the US and China should also help. Developed markets should also be positive, but not to the same extent as we have seen in recent years. The one exception could be the UK - if we get a positive Brexit outcome it has a lot of catching up to do with its global peers.”

Chelsea Selection funds to consider: RWC Global Emerging Markets and Fidelity Asia Pacific Opportunities

Small not large

“Larger companies have been outperforming of late, helped in no small amount by the big tech names, which have been responsible for some 70% of stock market gains this year in some countries. Smaller companies, which have paid the price of investor uncertainty in 2020, have relatively attractive valuations and should do well going into a recovery.”

Chelsea Selection funds to consider: Baillie Gifford Global Discovery and TB Amati UK Smaller Companies

Growth and value

“If November taught us anything it’s that investors shouldn’t write off value strategies completely. The rotation caused by the first vaccine news has reminded us why it’s unwise to be ‘all-in’ one style. While we believe growth will still do well in a low interest rate environment, having some value in a portfolio could reap rewards too.

Chelsea Selection funds to consider: Ninety One Global Special Situations and JOHCM UK Dynamic

Corporate not government bonds

“Government bonds in the developed world are offering little yield and little capital upside.
Inflation could be on the horizon - perhaps in 2022 – which could also make a bad situation worse. I prefer investment grade and high yield bonds, which offer better yields and again should do better in a recovery environment. Emerging markets bonds also have more room to manoeuvre, as interest rates are higher.”

Chelsea Selection funds to consider: Baillie Gifford High Yield Bond and M&G Emerging Markets Bond

Commodities and infrastructure not tech

“The big tech companies will continue to do well as they have momentum behind them in the form of structural change. But I don’t expect the same dominance as was shown in 2020. Instead, commodities and infrastructure look interesting. Both should benefit from economic recovery. While oil has potentially already had its bounce, metals will be key, especially as the push for electrification and renewable energy gathers pace.

Chelsea Selection funds to consider: Merian Gold & Silver and VT Gravis UK Infrastructure Income

Why not invest in the VT Chelsea Managed Funds?

The positioning of the VT Chelsea Managed funds reflect the views of the Chelsea research team the members of which are the Investment Advisors to the range.

If you agree with the team’s view on the outlook for 2021 or would simply like someone else to actively manage your asset allocation for you, you could consider investing in one of these funds.

For more information, visit our dedicated page or give our client service team a call on 020 7382 7300.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the research team and do not constitute financial advice.

Published on 14/12/2020