Investors are rethinking the role of bonds, technology and ESG after a chaotic year

Photographer: Michael Nagle / Bloomberg

This has been a year like no other.

Hammered by a with an unprecedented health crisis, global stocks fell in a bearish market in record speed, and then met at highs thanks to a flood of central bank money. Bond yields fell to unknown lows and the world reserve currency rose to historic highs, then retreated to its weakest level in more than two years as 2020 draws to a close.

BlackRock Inc.’s global asset distributors at JPMorgan Asset Management have described their plugs for investors from the volatile year. Here are some of his thoughts:

Rethink the role of bonds in portfolios

The massive stimulus granted by global policymakers when markets seized in March led to a breakdown of what has long been a negative correlation between equities and bonds. Ten-year US Treasury yields rose from 0.3% to 1% in one week and, at the same time, equity markets continued to fall.

Now, as investors face lower rates for longer, even as growth is achieved, doubts arise as to whether government bonds in developed markets can continue to provide protection and diversification, as well as satisfy investors looking for income gains. There is also one debate on the traditional investment policy of putting 60% of funds into equities and 40% into bonds, although the strategy proved resilient during the year.

“We expect a more active fiscal stimulus than any other modern period in history in the next economic cycle as monetary and fiscal policy align,” said Peter Malone, portfolio manager at JPMorgan Asset’s multi-asset solutions team in london. “Future returns on a static and static bond portfolio will likely be restricted.”

Some Wall Street giants I recommend investors to take a pro-risk stance to adapt to the changing role of bonds. Among them, the BlackRock Investment Institute advised investors to resort to equities and high-yield bonds, according to a note released in early December.

“Don’t fight the Fed”

Few would have expected the rapid change in the markets we saw in 2020. As the Covid-19 spread, the S&P 500 index fell 30% in just four weeks at the beginning of the year, a much faster fall than the average of a year and a half that had taken to reach the bottom in previous bear markets.

Then, as governments and central banks propped up liquidity economies, stock prices rebounded at an equally astonishing pace. In about two weeks, the US benchmark rose 20% from the March 23 low.

“You usually get more time to place your portfolio in a correction,” said Mahesh Patil, co-investment director at Bombay-based Aditya Birla Sun Life AMC Ltd. taking a nap in this rally and it would have been difficult to recover ”.

Being a little opposed helps, Patil said, adding that it’s best for investors not to make too big a call when securing cash. They should also focus on a bottom-up portfolio so they can cycle through both up and down, he said.

SooHai Lim, head of China’s former Asia Equities Barings, said the market’s rapid recovery demonstrated the strength of the old “Don’t fight the Fed” saying.

That said, some fund managers warned that investors should not take quick support from central banks as collateral.

“It was a turn of a coin where I was going from there and if they had come in early enough,” said John Roe, head of multi-asset fund at Legal & General Investment Management in London. “The downside could have been unprecedented.”

Teflon Tech

This year’s dizzying rise in technology stocks gave investors a lifelong opportunity. Anyone who missed this topic that benefited greatly from the trends of staying at home and the digitization of the pandemic would likely find their reference portfolios. The top ten U.S. companies that have contributed the most profits to the S&P 500 index this year are technology-related stocks, ranging from the pioneer of cloud computing Amazon.com Inc to chip maker NVIDIA Corp.

Everything is technology

These shares have contributed more to the S&P 500 earnings this year

Bloomberg

Even with a brief hiatus in November, when positive test results for a Covid-19 vaccine drove a rotation toward backward cyclical parts, the technology has ended up being the best-performing sector in Asia and Europe. Adherents to the value strategy saw multiple false starts during the year, as investors bet that the stock group, defined by the cheap and comprising mostly names sensitive to economic cycles, will finally have its day. They were disappointed.

“Never underestimate the impact of technology,” said Alan Wang, portfolio manager at Principal Global Investors in Hong Kong. Thanks to the economic costs of loans, “a lot of new technology has been upgraded and this (pandemic) has created a great opportunity for them to reinvent our lives.”

Innovative actions are now being valued by intangible factors such as goodwill and intellectual property rather than traditional methods such as price-benefit ratios, Wang said, adding that investors should adopt these strategies. evaluation.

Cash is king for businesses

The pandemic and the speed with which it irritated the markets showed investors that they should keep up with companies with strong balance sheets that can overcome the waves of uncertain time.

“The resilience of equities in a year like this helps demonstrate their value and justify their multiple higher values ​​in a low-rate world,” said Tony DeSpirito, director of key U.S. working capital investments at BlackRock.

In 2020 he reaffirmed two important lessons from DeSpirito ha après over the years: Investors should do stress tests on firms to see if the results and balance sheets of those firms are strong enough to survive recessions during normal periods; and should diversify investment risks and also increase sources of alpha potential.

Be aware of collateral damage