Research Coverage
February 2021
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Welcome to our global equities outlook and insights for 2021. We provide our investment team's viewpoints on the global equities market with specific focus on global small and mid-cap equities, and look at the opportunities and risks for investors as we make our way through the first quarter of the year.
Global equities outlook - looking beyond the large tech companies
The global equities market continues to look optimistically into 2021 with many positive factors that remain supportive of rising markets moving forward, including unprecedented levels of fiscal and monetary stimulus, low/negative interest rates, the potential for high vaccine efficacy, pent-up demand as economies re-open, and cost cutting activities across many corporates supporting margin expansion as volumes recover. With regards to our portfolio, we are also constructive, but are acutely aware that the culmination of events in 2020 has left behind a lopsided economy.
How are we navigating the global small and mid-cap market?
We remain broadly constructive on the outlook for global small and mid-cap (SMID) equities. The recovery from the March 2020 lows has been swift but there are still many positive factors that remain supportive of rising markets moving forward as discussed above. SMID equities should benefit greatly from the excellent earnings leverage that we typically see coming out of economic downturns.
Overall, we believe there are still many excellent opportunities within global SMID equities for active fundamental investors to generate favourable long term returns by buying quality companies without taking undue valuation risk. Global SMID equities will continue to play an important long term growth role in investors’ portfolios in 2021 and beyond.
Risks and opportunities for investors
In recent months there has been a rising chorus of market commentators that have been warning of a market bubble forming. While identifying bubbles, and especially the timing of them bursting, is an extremely difficult task, that's why we believe it is important to distinguish between the different areas of the market which are most at risk. We still believe there are many quality companies with attractive long term fundamentals that represent good value but these should be distinguished from some of the speculative risk taking that is occurring in the market today. Much of the risk taking and momentum based trading is especially prominent in many unprofitable companies that are now trading at extreme valuations and pose a high risk of investor losses in the years to come.
We are seeing a wide range of signs that fundamentals are taking a back seat to speculation in the current market, including:
While we still believe there are plenty of good opportunities for active stock pickers to generate favourable long term returns, investors should be very cognisant of the risk profile of any investments they are making. In our view, over the long term the main driver of stock prices are company fundamentals (i.e. balance sheets, real earnings, competitive advantages, cash flows, valuations etc.) and in times like these when speculative activity is rife, we believe that quality focused fundamental investing is as important as ever in order to provide downside protection during bouts of market volatility, and to capture the full benefits of long term earnings compounding.
Welcome to our global equities outlook and insights for 2021. We provide our investment team's viewpoints on the global equities market with specific focus on global small and mid-cap equities, and look at the opportunities and risks for investors as we make our way through the first quarter of the year.
Global equities outlook - looking beyond the large tech companies
The global equities market continues to look optimistically into 2021 with many positive factors that remain supportive of rising markets moving forward, including unprecedented levels of fiscal and monetary stimulus, low/negative interest rates, the potential for high vaccine efficacy, pent-up demand as economies re-open, and cost cutting activities across many corporates supporting margin expansion as volumes recover. With regards to our portfolio, we are also constructive, but are acutely aware that the culmination of events in 2020 has left behind a lopsided economy.
How are we navigating the global small and mid-cap market?
We remain broadly constructive on the outlook for global small and mid-cap (SMID) equities. The recovery from the March 2020 lows has been swift but there are still many positive factors that remain supportive of rising markets moving forward as discussed above. SMID equities should benefit greatly from the excellent earnings leverage that we typically see coming out of economic downturns.
Overall, we believe there are still many excellent opportunities within global SMID equities for active fundamental investors to generate favourable long term returns by buying quality companies without taking undue valuation risk. Global SMID equities will continue to play an important long term growth role in investors’ portfolios in 2021 and beyond.
Risks and opportunities for investors
In recent months there has been a rising chorus of market commentators that have been warning of a market bubble forming. While identifying bubbles, and especially the timing of them bursting, is an extremely difficult task, that's why we believe it is important to distinguish between the different areas of the market which are most at risk. We still believe there are many quality companies with attractive long term fundamentals that represent good value but these should be distinguished from some of the speculative risk taking that is occurring in the market today. Much of the risk taking and momentum based trading is especially prominent in many unprofitable companies that are now trading at extreme valuations and pose a high risk of investor losses in the years to come.
We are seeing a wide range of signs that fundamentals are taking a back seat to speculation in the current market, including:
While we still believe there are plenty of good opportunities for active stock pickers to generate favourable long term returns, investors should be very cognisant of the risk profile of any investments they are making. In our view, over the long term the main driver of stock prices are company fundamentals (i.e. balance sheets, real earnings, competitive advantages, cash flows, valuations etc.) and in times like these when speculative activity is rife, we believe that quality focused fundamental investing is as important as ever in order to provide downside protection during bouts of market volatility, and to capture the full benefits of long term earnings compounding.