Main asset classes
Fixed income
Credit continues to shine
In 2021, core government bonds’ gains will be meager, while emerging market hard currency bonds remain appealing. In credit, investment grade offers a good risk/reward. In high yield bonds, we see select opportunities to enhance returns in the lower-rated credit segments.
Equities
Equities still drive returns
Equities offer attractive return prospects as we move into 2021. The broad political backdrop should remain supportive given very loose monetary policies globally and continued fiscal support. The earnings slump in 2020 due to the pandemic should prove to be transitory. Consensus forecasts for global equities imply that 2021 earnings will exceed the 2019 level, which should support equities over the course of the year.
Currencies
USD set to lose further ground
We expect further USD declines in 2021 on the back of improving global growth, a deteriorating US real yield advantage and the widening of fiscal and external deficits. The EUR and JPY should benefit from this trend. We believe the CNY will also gain, supported by portfolio flows.
Real estate
Shifting to the post-pandemic world
The economic recovery and low interest-rate environment should be favorable for real estate investments in 2021, even though COVID-19 represents an ongoing challenge for certain market segments. We favor sectors underpinned by structural growth such as industrial and logistics real estate.
Hedge funds
Better trading conditions for hedge funds
We expect hedge funds (HFs) to deliver low single-digit returns, with volatility comparable to that of investment grade (IG) bonds in the USA and UK. As such, we believe that HFs are viable alternatives to stabilize portfolios. Although trading conditions for HFs are set to improve going into 2021, due diligence remains critical.
Private equity
Long-term rewards
Patient private equity (PE) investors with access to best-in-class managers should be able to achieve an attractive excess return over public markets. As PE requires a long-term commitment, we note the importance of a measured approach with well-diversified investments over the cycle. Sound due diligence and access to top managers with proven track records are key success factors.
Commodities
Market rebalancing continues
Commodities witnessed a turbulent 2020. Gold reached new all-time highs while cyclical markets hit deep crisis troughs from which they were still recovering at the time of writing. Going into 2021, we think the backdrop should stay conducive for real assets and commodities in particular.
