A variety of prescient macroeconomic factors could set the stage for actively managed funds to deliver for investors in 2021.
As we consider the investment outlook for 2021, active investment strategies are in prime position to manage market concentration risks and capture opportunities.
“Bottom-scraping interest rates in 2020 were a major factor fueling a stock market that, after plummeting in March from the pandemic, rallied to post a banner year,” writes Investment Advisor founder Dave Gilreath for CNBC. “Low interest rates also vexed investors seeking yield from bonds purchased to diversify portfolios and reduce risk. But while bond yields likely will remain paltry in 2021, much higher yields are available from alternative fixed-income investments that individual investors typically overlook.”
Aggressive stimulus measures, such as the ongoing near zero-rate environment and government aid package, are supporting the ongoing bull run. That could pave the way for active managers to outperform next year.
“Along with low rates, conditions pointing to equity growth in 2021 include the continuation of the Fed’s bond-buying program at current levels and anticipated economic recovery related to coronavirus vaccinations,” notes Gilreath. “The rollout of vaccines was apparently a factor in a partial rotation, which showed signs of starting last summer, from some growth tech companies to value stocks, including industrials.”
A Value Rebound in 2021?
For some time, rebounds in value stocks have moved in fits and starts, but there’s brewing sentiment that the recent gains could be different than prior disappointments, all to the benefit of active managers.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.
With the growth/value gap as wide as it’s ever been, there are incredible opportunities for investors to jump into equities, while the default maneuver in today’s market landscape is heading into safe-haven assets like bonds or precious metals. Investors could be missing out.
Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.