What role will Global Equities play in asset allocation strategies for 2021 and beyond?

19 November 2020 – After a momentous year for global equities, CAMRADATA’s latest whitepaper on Global Equities assesses the risks and opportunities in the global markets and considers if China will lead the global economy out of the slowdown.

The whitepaper includes insight from guests who attended a virtual roundtable hosted by CAMRADATA in October, including representatives from Artemis, Mackenzie Investments, Newton Investment Management, Isio, Kirstein, Riscura, St James’s Place Wealth Management and Willis Towers Watson.

The whitepaper highlights that 2019 was a sluggish year for global equities, with 2.9% year on year growth, which is the lowest for 10 years. The COVID-19 pandemic triggered further contraction in Q1 2020; however, by the summer, global equities had recovered – fuelled by an injection of liquidity from central banks and governments.

Sean Thompson, Managing Director, CAMRADATA said, “Record levels of monetary and fiscal stimulus, alongside low inflation and interest rates, provide a supportive environment for risk assets. But there are questions about whether the equity recovery can be sustained when backed by modest economic fundamentals and, in the eyes of some analysts, ‘oversold market sentiment’.

“Our panel considered how asset managers are refining their approaches to research, stock selection and risk management to maximise opportunity from global equities, and the role of ESG in their investment choices. They also explored investment strategies for 2021 and beyond, and more, generally if the Asian economies will provide dynamism to sustain the advance of global equities.”

The guests reviewed the last five years and fund managers were asked to assess their performance. The three managers on the panel were then considered whether their process could be described as “core” or “all-weather”; adaptable to any environment.

The panel moved to discuss ESG impact, the debate between active and passive management and if there may be a return to running equities against a cash benchmark. The panel finished with observations on active managers during the worst disruption this springtime.

Key takeaway points were:

  • One panellist warned that the good times could not last when unprecedented monetary policy had caused structural dislocations and were very concerned with various valuation metrics in some sectors of the market.
  • Diversifying across styles and combining managers in a portfolio context can provide a smoother return stream for clients.
  • To reduce risks, another panellist combines multiple concentrated managers into a global equity portfolio with the idea that when one manager zigs, another zags.
  • Because style biases can materially impact performance over the short term, combining managers with complementary approaches can mitigate this impact and allow their repeatable stock selection to deliver attractive outcomes.
  • One panellist said there has been a move to cash benchmarks after the dot.com bubble. Beta had dragged everyone down and it was the time that hedge funds found their way into mainstream investment management.
  • Investors can find yields of 4-5% from banks in China – which have not been forced to cut dividends, unlike some European peers – and Telcos in Japan. Also, one of the tech giants, AliBaba has a free cash yield in China of 4-6%.
  • The conversation then turned from yield per se to appealing stocks. One panellist highlighted TSMC and Samsung as two quality companies that should continue to deliver.
  • Another highlighted Citigroup and a Norwegian specialist in waste recycling as stocks they believed became more attractive because of the COVID disruption.

Sean Thompson added, “The roundtable discussion ended by noting there were real changes in prospects caused by the pandemic, if only in price. It was expected that more active managers would upgrade their portfolio with quality businesses. Instead, some have been genuinely surprised and disappointed how many managers did nothing.”

The whitepaper also features three articles from the sponsors offering valuable additional insight. These are:

  • Artemis: ‘A reliable way to grow real wealth – whilst maintaining principles’
  • Mackenzie Investments: ‘Simple but not easy: the global search for mispriced great businesses’
  • Newton Investment Management: ‘Harnessing themes for long-term returns’

To download the Global Equities whitepaper click here