2021 Outlook – Multi-Asset Investing

Outlook

As the new year approaches, hospitals are under increased strain, leading some governments to impose tighter restrictions on activity. This is contributing to pockets of weakness in economic data, particularly in the service sector. Despite these short-term concerns, our outlook for 2021 remains bullish as vaccine deployments, accommodative monetary and fiscal policy, and upbeat corporate earnings expectations continue to drive markets higher.

2020 was all about money supply and currency debasement, effectively driving speculation and narrow leadership in equity markets. With a large amount of investable money on the sidelines and elevated savings rates, we expect both lending and consumption to increase as economies reopen. In the end, we believe there is a fair chance that economies will deliver exceptional growth.

Positioning and opportunities

In our view, what will be different next year is which areas of the market drive returns. The spring and summer rallies were spurred by “stay-at-home” sectors, hence the strength of the tech-heavy, large-cap, U.S. equity market. Winners next year are likely to be “reopening” areas of the market. Even with their recent strength, valuation differences remain at extremes, suggesting we are still in the early innings of a rotation.

Within our portfolios we continue to trim fixed income and add to equities. While short-term interest rates remain low for the foreseeable future, long-term interest rates will likely trend higher over the next year. As a result, we have trimmed longer duration government bonds and added to corporate bonds. We expect lower default rates and an improving economy will lead to healthy returns from investment-grade and high-yield bonds next year. We have also added Treasury Inflation-Protected Securities (TIPS) to our portfolios. These bonds are backed by the U.S. government and linked to an inflation gauge designed to protect investors from the decline in the purchasing power of their money.

Looking at equities, we have been adding to “reopening” areas of the market. From a regional perspective, we are focused on Canada and Europe, markets that have more exposure to cyclically sensitive sectors such as energy and financials. We have also been favouring smaller companies over larger ones. Smaller companies are less expensive, and we expect they will have higher earnings growth potential in 2021. In summary, globally synchronized expansion will help revitalize “reopening” sectors and provide a positive backdrop for our portfolios.

Risks

Any disruptions to vaccine deployment or its effectiveness could push the hope for normalcy further down the road. However, we believe low interest rates will increase investors’ willingness to tolerate delays. In addition, we expect more stimulus to combat any hiccups in reopening; central banks will likely keep printing money and governments will extend support programs. Both will help to buy time and limit market downside.

Source: Bloomberg Finance L.P. and CI Global Asset Management as at December 22, 2020.

For more information, please visit ci.com.

IMPORTANT DISCLAIMERS

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Global Asset Management. and the portfolio manager believe to be reasonable assumptions, neither CI Global Asset Management nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.

CI Multi-Asset Management is a division of CI Global Asset Management. CI Global Asset Management is a registered business name of CI Investments Inc.

©CI Investments Inc. 2020. All rights reserved.

Published December 30, 2020