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Ten investment convictions for 2021

Stéphane Monier, chief investment officer, Lombard Odier Private Bank (Sponsored), 25/11/2020

1. Stay invested in risk assets

Positive vaccine developments and continued monetary and fiscal support, are set to accelerate economic healing. Corporate earnings offered a positive third-quarter surprise, and with interest rates expected to stay low, equities should continue to rally with fixed income carry strategies still providing returns.

We believe that the sound medium-term outlook will reward portfolios that stay invested and broadly diversified, while gradually adding exposure to some of 2020’s cyclical equity laggards.

2. Maintain portfolio ballast

The vaccine-fueled recovery will not be a linear process. The low-yield environment makes traditional portfolio stabilisers, such as domestic government bonds, less efficient. We therefore favour holding a diversified set of hedges.

These can range from US treasuries, or Chinese government bonds, to gold, the yen or put options. Such assets can evolve independently from the equity risk that we want to cushion, and therefore need tactical management.

3. Hold onto gold, for now

Short-term uncertainties should keep gold prices trading in the $1,850 to 2,000 per ounce range. This offers an efficient hedge against equity volatility. A depreciating US dollar may help the physical demand for gold, but we expect financial demand to remain the strongest price driver.

Later in 2021, once a recovery is in place, real rates are back to normal levels and investors have again increased their exposure to risky assets, gold prices will likely trend closer to our 12-month target of $1,600/oz.

4. Use carry strategies to generate yield

While the traditional portfolio hedging properties of government fixed income assets may be reduced given the current low yield levels, corporate credit should continue to benefit as investors seek returns.

We think that this dynamic, in an environment of low inflation and anchored monetary policy, will continue. In this context, emerging market hard currency bonds look particularly attractive.

5. Capture the recovery with balanced cyclical and growth stocks

The vaccine news eliminated the worst-case scenario for the recovery and made cyclical stocks, including small capitalisations, more compelling. That sets the stage for a partial catch-up in valuations and earnings in industrials, construction, materials, financials and energy stocks, as well as in Europe’s markets where these sectors are predominant.

All of these sectors suffered under the pandemic slowdown and tend to perform early in an economic upswing. We expect demand for quality names in healthcare and technology to continue in 2021, especially after the initial catch-up phase, as their fundamentals remain strong.

Stéphane Monier, chief investment officer, Lombard Odier Private Bank

6. Don’t miss Asian equities

China’s economic recovery and more domestic-driven economy makes the country’s equity markets increasingly uncorrelated to the rest of the...


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