Top 10 investment themes for 2021


2020 has been a year like no other on so many different fronts, and I’m sure we’re all happy to turn the page on the calendar to a new year that hopefully is filled with good health and a certain form of return to relative normality. As you may remember, my general theme for 2020 was initially, “The year of the 3 big E’s“—Profits, economy and elections — given the interconnected nature of these three factors. However, 2020 quickly turned into”Year of the Covid-19 pandemic“, where stocks and the economy were initially devastated by the lockdown measures that were put in place to help limit the spread of Covid-19 and then staged remarkable recoveries until the end of the year .

As effective vaccines and therapies now become available, I think the predominant macro theme for 2021 will be “The reopening of the world economyIn that regard, here are my top ten investment themes for 2021 for your consideration and consideration, reminding you that while 2021 may turn out to be less volatile than 2020, the days of periods of heightened volatility certainly aren’t. behind us.

1. Areas of Covid-19 leadership continues until 2021

The way humans and businesses operate and interact continues to evolve, and this rate of change has never been faster than it is today. This development has occurred in areas such as technology, commerce and healthcare. I argue that the already rapid developments underway, combined with the force of change brought about by the Covif-19 pandemic, will allow the fields of technology, commerce (especially e-commerce) and healthcare to continue to ensure the economic and market leadership for years to come.

2. Expect more innovative health solutions from biotechnology

The Covid-19 pandemic was a painful reminder of the need for innovative health solutions around the world. However, healthcare innovations were needed before the onset of the pandemic and will likely still be needed to help treat and cure other rare and chronic diseases in the future. These innovative solutions typically come from small-cap biotech companies, which are then pursued as buyout targets by larger-cap pharmaceutical companies. I don’t expect the pace of biotech mergers and acquisitions to slow significantly anytime soon.

3. Transformational technologies for a transforming society

As I anticipate the gradual reopening of the global economy throughout 2021, many pre-Covid societal norms have undergone immense transformation. The company will likely continue to communicate, work, shop and educate remotely more than ever before. Technology will continue to support this societal transformation. Specifically, transformational or revolutionary technologies, such as artificial intelligence, robotics, blockchain and even 5G, will be of paramount importance to individuals, businesses and governments. The critical nature of these transformations should help provide growth potential for equities of well-managed and well-positioned companies providing these types of technologies.

4. More exponential growth for e-commerce

The transition from traditional in-person retail sales to online sales was well underway before the Covid-19 pandemic, in large part due to the speed and convenience of shopping online. Consider that online sales were only 4.2% of total US retail sales in the first quarter of 2010, and recently were 16.1% in the second quarter of 2020, according to Statista. Covid-19 has accelerated the transition from traditional brick-and-mortar shopping to online commerce. For example, at the height of the lockdowns associated with Covid-19 in April 2020, U.S. e-commerce grew 49%. It is also estimated that e-commerce sales will increase by around 36% during the 2020 holiday shopping season, while traditional brick and mortar sales are expected to decline by almost 5% during the same period. E-commerce is not just a short-lived fad, it’s here to stay, and investment opportunities exist for companies that earn income from their global roles in the e-commerce ecosystem.

5. Small caps positioned to outperform the largest caps

Large-cap US stocks rose sharply. Consider that the Dow Jones Industrial Average, dominated by large caps, and the S&P 500 Index both hit all-time highs in 2020. The S&P 500 even recorded a remarkable rally from the closing low of 2,237. on March 23, 2020. Consider that the S&P closing level of 3,663 of 500 on December 11, 2020, was equivalent to a 64% rebound from the March 23 low. However, this record run resulted in high valuations, as the price / earnings (P / E) ratio of the S&P 500 as of December 11, 2020 was 28.65, compared to a 10-year average P / E for this index of. 6:40 p.m. This historically high valuation level does not suggest that US large cap stocks cannot or will not rise in the new year. On the contrary, investors will likely have to be much more selective to find additional pockets of growth opportunities. An additional pocket to consider is that of small-cap stocks whose valuations are not as stretched as those of their larger-cap counterparts and which historically perform well during periods of economic recovery.

6. International actions come back to the fore

While many investors understand the benefits of diversification, the concept is often not fully practiced when it comes to geographic diversification. Studies have shown that many investors tend to be biased by their home country and are generally under-allocated to international equities. This bias may have turned out to be beneficial recently, as these same investors have benefited from the relative outperformance of US equity markets relative to their developed international counterparts over the past decade. However, in addition to their potential diversification benefits, there are several reasons why international equities should be on your radar for 2021, including, but not limited to, a weaker US dollar, attractive relative valuations and the planned global deployment of Covid-19 vaccines.

7. Sustainable impact investing is becoming more widespread

Numerous studies have concluded that companies with superior environmental, social and governance (ESG) profiles have generally achieved, and often exceeded, the performance of comparable traditional investments. These performance results are both absolute and risk-adjusted, for all asset classes and over time. As a result, feeling good about the companies you invest in and the returns their actions can potentially generate are no longer mutually exclusive outcomes. For these reasons, we anticipate continued adoption of ESG-oriented strategies in the new year and believe that sustainable impact investing will soon be part of the mainstream of the global investment landscape.

8. Dividend paying stocks used for growth and income objectives Dividends represented 42% of the total return of the S&P 500 Index for the period 1930-2019. After recognizing the importance of dividends, the next step is to find companies that are used to increasing their dividends and less likely to reduce or suspend their dividends. This task has become increasingly important and yet more difficult during the Covid-19 pandemic. According to CNBC, 639 companies reduced or suspended dividends during the peak of shutdown orders that were put in place during the second quarter to help limit the spread of the coronavirus. This is the highest number of dividend cuts or suspensions since 2009. Going forward, the pressure on dividends is expected to ease in 2021 as the economy continues to recover. Additionally, I would expect investors to embrace dividend paying stocks as an alternative to low yielding fixed income instruments.

9. Privileges become a privileged source of potential income

One type of securities that income-oriented investors tend to forget, or that they may not be aware of, are preferred securities. Preferred securities represent ownership of a company and have both bond and equity characteristics. They typically pay a fixed income, have a face value, hold a credit rating, and trade on a major exchange. Often referred to as “preferred stocks,” preferred stocks also generally experience less daily volatility compared to common stocks, have dividends that are paid out before dividends to common shareholders, and generally have a higher declared dividend than the company’s common stock. – and even the obligations of the company in certain cases. As the Federal Reserve has indicated, it is likely to keep rates close to zero until 2023 or until substantial progress is made on the inflation and employment fronts. For all of these reasons, we expect Preferreds to become a popular choice for income-oriented investors.

ten. Demand for municipal bonds remains high

I argue that demand for municipal bonds (and municipal bond strategies) is likely to remain strong for the foreseeable future as income-oriented investors continue their search for attractive yield-based alternatives in this challenging yield environment. , especially investors in the highest tax brackets. While an additional offering of municipal bonds, both tax-free and taxable, may come on the market in 2021 to help fund critical infrastructure projects in the United States following a bill on infrastructure spending likely to be adopted in 2021, this new offering has a high probability of being quickly absorbed by yield-hungry municipal bond investors. Other potential beneficiaries of an infrastructure spending bill will be the American people, in general, from an employment perspective, as well as sectors of the equity market including materials, industry, energy. , utilities and telecommunications services.

Best wishes for a happy and healthy 2021 to all!


Disclosure: Hennion & Walsh Asset Management currently has allocations within its fund management program, and Hennion & Walsh currently has allocations within certain SmartTrust Unit Investment Trusts compatible with many of the portfolio management ideas to consider. considerations cited above.


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