Dear Friends,

We start 2021 still tackling many of the major challenges from 2020. The COVID-19 pandemic has continued on, affecting livelihoods and economies around the World. While most of the World experienced a recession in 2020, we expect economic growth to re-accelerate in the USA in 2021 as the COVID-19 vaccine rollout gains momentum. Many believe GDP growth in 2021 could exceed 5% for developed markets and roughly 6% for emerging markets. However, the numbers largely reflect a cyclical catch-up from global recessions last year, and mask substantial variations by country. Growth will be underpinned by interest rates which remain exceptionally low, as central banks monitor the fragile recovery.

According to Goldman Sachs, here are some top ideas for equity investments in 2021:

Actively manage disruption: A forward-looking active strategy may be the best way to invest early in the next disruptors – and avoid companies vulnerable to disruption. As disruptive trends accelerate, market-cap-weighted indices can leave investors behind – and exposed to high concentration risk. Passive implementation may, in fact, be too aggressive, particularly in fixed income where the Core Bond ETF’s is typically favor government debt.

Seek growth outside of US mega-caps and in global megatrends: We believe technological innovation, the “new age” consumer, the future of health care, and sustainability will continue to disrupt the investment landscape. But with elevated valuations and increasingly saturated markets, investors need to look beyond US mega-cap technology stocks to capture key trends in innovation across all sectors, market capitalizations, and regions, including in the higher growth emerging markets. With many growth stocks trading at a premium to cyclical stocks, staying disciplined on valuation will be critical.

Re-evaluate high-yielding equities and value stocks: Yield remains scarce – except in the equity markets, where the percentage of stocks at historically high yield spreads versus government bonds is close to a record level. We have written often about our concerns regarding government bonds. So, how is an investor to find yield? Dividends have stabilized, and valuations are cheap, in part because many of the stocks are in the value universe, which underperformed growth in 2020. Goldman believes an economic recovery is likely to favor value stocks, which tend to be more cyclical, presenting another compelling reason to diversify beyond mega-cap growth stocks. For high-yielding equities, we believe an active approach focused on yield sustainability (not necessarily the highest yield) is prudent in an environment of accelerated disruption, where the highest-yielding names tend to be the riskiest.

Invest with an ESG (Environmental, Social, and Governance) mindset: As ESG factors may matter more to investment success since governments, corporations, and consumers care more about it, we believe the gap between the ESG leaders and laggards will continue to widen. Goldman believes that ESG investing favors an active approach that uses fundamental analysis and corporate engagement to drive positive change and counter the limitations of available data.

Goldman believes that COVID-19 – and its devastating effects on livelihoods and economies – will recede in 2021, the recovery will be uneven and sporadic depending on the progress of the virus and vaccination. Yet, even a more normal environment is still a dynamic one, and all investors face a variety of near and long-term challenges. We couldn’t have said it better ourselves.

Debbie