2021 is just around the corner, and hopes are rising that certain sectors will bounce back. Should investors get carried away or approach with caution? 12 investment experts give their predictions on how areas such as ESG, global equities and artificial intelligence will fare next year.
Nick Hayes, portfolio manager at AXA Investment Managers
2021 currently looks set to be the year of the barbell when it comes to fixed income investing globally. On the one hand, we have the ultra-liquid, ultra-secure bond - chief among them US Treasuries, which we believe will continue to trade in a fairly narrow range, with any substantial rise in yields proving temporary.
This is because governments are simply not issuing enough bonds to meet demand, and we think this supply/demand dynamic continues into next year, with central banks and governments providing support to economies and buying up bonds via QE.
They are providing much needed liquidity to markets, and they will have to keep doing so for some time. It may well be that this is storing up problems down the line (someone will have to pay for this eventually). But in the middle of a pandemic, that is a secondary concern.
If those types of bonds have a place, then so do bonds that offer much higher yields. Income has become scarcer for many this year, driving investors up the risk spectrum into the likes of high yield and EM debt.
We think Asian debt markets in particular become more of a mainstay of global fixed income markets over time.
Where we have more concerns - and are therefore avoiding - is around the more highly-rated developed market corporates globally, where yields have tumbled.
These bonds offer investors nowhere to hide now, given where yields are, so there is no cushion to protect investors if current positive sentiment reverses.
William Hardyment, investment manager - real estate at Floreat
UK real estate
We focus primarily on the office sector. Although it is facing challenging times, the two lockdown periods have, if anything, reinforced the need for offices.
Working from home suits established teams in established roles. Otherwise, an office is vital: training new employees is almost impossible working from home, so is building trust. Face-to-face meetings with counterparties and clients engender far more good will than video calls.
Furthermore, many younger employees live in accommodation that does not promote working from home long term (we do not all have 10-acre gardens!). The office is therefore here to stay.
From a pricing perspective, with many institutions not buying offices right now there is the opportunity to purchase quality offices at prices, which we believe are over selling the risks involved.
Few transactions make yields hard to pin down, although we believe they have moved out about 50bps-75bps. Headwinds for the sector include uncertainty around short-term rental levels, occupational densities, tenant demand, use of space and, especially in London, concern over the commute.
To protect against this, landlords must ensure buildings are flexible and focus on the wellness needs of the individual occupiers, with special focus on ventilation over the near term. Indeed, many of the burgeoning occupier requirements were already present prior to Covid-19 and the pandemic has just accelerated trends.
Offices that can satisfy occupier needs and actively make people want to be there will stand the test of time. Offices that cannot will suffer and become obsolete.