After a global downturn as unique as the one we witnessed in the first quarter of 2020, trying to gauge what type of recovery we will see has been almost impossible. But I’m fairly optimistic going into 2021. 
Figures from purchasing manager indices are indicative of other data that support the notion that the global economy is healing more rapidly than expected. They show that the US, eurozone and China (as well as global PMI) are now above 50, indicating their respective economies are now expanding.
A recent article I read from Janus Henderson also highlighted the US jobs market as an example of the resilience in the global economy. It says that of the 21 million cumulative jobs lost due to the pandemic around 12 million have already returned. I found that very interested given we are not out of the woods yet by any means. The article goes on to estimate global growth of around 5.2 per cent next year.
These improving economic conditions are being underlined by the positive corporate earnings seen in the third quarter of 2020 – with 82 per cent of S&P 500 companies beating consensus estimates. Could the lessons learned in the wake of the slow recovery from the ‘Great Financial Crisis’ – such as having stronger balance sheets and tighter processes – have better-prepared companies for such as a shock on this occasion?
It’s been well documented that Covid is bound to accelerate a number of trends already existing in the market. For example, the growth of technology (the likes of e-commerce and cloud computing) as well as a greater focus on healthcare. Both sectors should continue to do well, but I expect a widening of the recovery to other sectors and assets.
For example, while oil has potentially already had its bounce, metals will be key, especially as the push for electrification and renewable energy gathers pace. Cyclical sectors such as energy, materials or industrials now have the potential to rise from a low base and investors may already be looking beyond growth to tap into that opportunity.
Schroders says that global equities are, in aggregate, reasonably valued and in line with their long-term averages on a forward basis – adding that “European and Japanese profits are expected to rebound the most in 2021 and possibly in 2022”.
Of course, there are still risks. We are in a global recession, geopolitics are still an issue and we cannot rule out an inflationary surprise – but I believe 2021 could be a positive one for equities across the globe. Below are four funds worth considering for this scenario.
Jupiter European Smaller Companies
Smaller companies have paid the price for investor uncertainty throughout 2020 and are now on attractive valuations globally. One area of particular interest is European small-caps as it was not that long ago I read that they were trading at their cheapest level to large-caps since 2002. A good fund to tap into would be the Jupiter European Smaller Companies fund, managed by Mark Heslop. The 50-60 stock portfolio focuses on high quality, cash-generative businesses.
JP Morgan Emerging Markets Investment Trust
More diplomatic relations between the US and China, the potential for a weaker US dollar and the positive handling of the pandemic in Northern Asia are all positives for emerging markets. So are longer-term trends like the demographics and a growing middle class. Managed by Austin Forey, the JP Morgan Emerging Markets Investment Trust has an established long-term track record and is backed by one of the largest emerging market research teams globally.
Man GLG Income
We’ve already seen some positive headlines on UK dividends heading into 2021, while the vaccine news has also been a timely boost for value investors. Managed by Henry Dixon, the Man GLG Income fund has a value-driven approach, investing predominantly in UK companies of all sizes, but can also invest in continental European companies that derive a substantial part of their revenues from the UK. It also has the ability to invest up to 20 per cent in corporate bonds.
LF Blue Whale Growth
Those who prefer to back the global story may like this high conviction offering, managed by Stephen Yiu. The team only invests in the very best opportunities with an absolute maximum of 35 holdings and pays no attention to indices or benchmarks. A cursory look at the portfolio will typically show a heavy bias towards technology firms, but this fund is much more than just a play on tech.
Darius McDermott is managing director at FundCalibre and Chelsea Financial Services. The views expressed above are his own and should not be taken as investment advice.