Things We are Looking Out For in 2021
Tideway Market Update, 8th January 2021

Firstly – Happy New Year!

We are locked down again, but not thankfully our portfolios, which have continued upwards and are now pushing on to new highs.

At the very end of 2020 and in the first week of 2021 we have seen a Brexit deal agreed, the vaccines rolling out and the end of Trump. What makes me think that it won’t be the last we hear of any of these sagas?

For now, pretty much all investment markets are in a bullish mood with all of our funds making further gains. Even the laggard FTSE 100 index has been partaking in the gains with a 3% rise in one day this week and a 23% rise since October 2020.

We think we know why this is happening:

  • Extremely low risk-free returns are driving investors to take risks to potentially make higher returns to stay ahead of inflation
  • Many households are in balance sheet repair mode and new savers are coming into the market so there is a growing glut of savings looking to get invested, I’m thinking globally here not just in the UK
  • The Chinese economy is on fire, fuelling demand for commodities in turn fuelling a recovery in some of the most ‘under-owned’, most hated stocks in the world - oil companies and miners
  • There is an expectation of a wider economic recovery from the virus-induced depression as the vaccines roll out and a ‘new’ normal is forecast later this year. This wider recovery is fuelling demand for those companies left behind in 2020, such as the financials

For those of you with an appetite to understand some of these issues in more detail we will be shortly publishing a discussion I had with Martin Shenfield, who is the Managing Director of Global Macro at TS Lombard, on Thursday 7 January . I would ask you to excuse the production values, it is not as good as Netflix’s The Crown! However, we always find Martin’s views interesting when he joins us on our investment committee and I hope you find the content worthwhile. We are pleased to have access to TS Lombard’s in depth, independent global research which helps us with the strategic positioning of our portfolios.

The interview highlights our combined views that we are well placed across all of our portfolios for the current investment outlook in which most things are rising in value but some more than others, particularly some of those investment assets which got left behind in 2020, for no good reason. We are particularly pleased to see reward from our positions in Asia where we could see the virus having less of an impact, Emerging Markets which we considered undervalued and of course our value funds which caused us angst in 2020 but now look right and are performing as expected.

We do highlight risks of a few bubbles in some areas of the markets and as ever we are being cautious to limit our exposure to these and keep well diversified. We also discuss the things we will be watching out for in 2021 that might warn of changing dynamics and which reflect the drivers listed above. In particular:

  1. US inflation, employment and interest rates
  2. The success of the vaccines
  3. US and Chinese politics
  4. Earnings growth as we emerge from the recession

Finally, I would remind you that we do now run 10 different portfolios based on risk and the need for income or capital growth and covering pure bonds, pure equities and multi asset. If you have any doubt that you are in the right portfolio or feel you would like to take a little more, or indeed a little less risk, please do talk to your wealth manager who will be able to discuss this further with you.

Have a good weekend,
The Tideway Team

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