Annual outlook 2021 – Looking ahead!
Last year will go down in the history books. It will be remembered for stock markets that recorded the fastest crash ever, the US elections and a president who could not get over his defeat, the permanent squabbling over a Brexit that was still sustainable at the end of the day and, last but not least, a virus and the vaccines developed to combat it.
A very eventful year, no question, but as of today history and therefore it is time to look ahead.
Our equity fund closed the year with and +4.72% in CHF and +4.91% in EUR. This compares to the major indices: SMI +0.82%, DAX +3.35%, EuroStoxx50 (Europe) -5.32%, S&P500 (USA) +6.03% and MSCI World (global) +4.45% (all values in CHF). In a very volatile year, we were thus once again able to generate added value for our clients. Due to the very good performance, a distribution is also planned for March.
On an annual basis, our bond fund stands at +1.87% in CHF +2.0% in EUR respectively, compared to the Bloomberg Barclays Global High Yield Total Return Index Value Hedged EUR, which gained 3.9%. As we did not suffer any debtor or interest rate defaults in the past year despite the pandemic and lockdowns, we will again make a distribution in March 2021. We expect a distribution at a similar level as in previous years (5.20-5.60), resulting in a distribution yield of around 4.5%.
As the markets continued to rise, we realized gains on stocks that we consider to be exhausted. Especially technology stocks, which experienced another decent boost towards the end of 2020, should be mentioned here. However, we also consistently sold companies that are classified as underperformers. On the other hand, we decided to build up and further expand existing positions in the oil sector.
Our largest weightings in individual sectors are currently in Materials and Healthcare. In financials, it has been worthwhile to remain invested despite interim underperformance. Although the sector made significant gains in the last quarter, we still see a need to catch up due to favorable valuations. We also remain loyal to gold, with a weighting of around 3.5% of the total portfolio.
We have extended our existing hedges and even increased them slightly in the new year. We can understand the price rally after Christmas, due to another 900 billion package in the U.S. and a last-minute agreement on Brexit, but at the same time the potential for setbacks is increasing. Overall, we are well positioned, broadly based and somewhat more cautious than before the end of the year.
The Corona pandemic has caused debt to explode worldwide. Last year, global government debt rose to 101.5% of economic output. The highest level ever, as stated by the International Monetary Fund in October 2020. The U.S. in particular has stood out negatively. During Donald Trump’s term in office, the country’s debt has risen from an already high 106% initially to nearly 120% of gross domestic product.
Why is this important? Because it makes it clear that interest rates will remain at historically low levels. No central banker or government in this world will show any serious interest in sustained increases in interest rates. After all, everyone is aware that this would result in insolvent countries and collapsing real estate markets worldwide. Consequently, we will see a flat yield curve with rising inflation. With the consequence of a falling real interest rate, or to put it very simply: the negative interest rate will destroy your savings -- and your private pension provision at the same time.
What does this environment mean for the stock markets? We have a rocky road ahead of us, no question, but let’s not forget that sooner or later every crisis was absorbed by the markets. In particular, stock markets are adapting enormously well to new circumstances, laying the foundation for further price rises.
Governments will have to contend with falling tax revenues and rising transfer payments, but at the end of the day, central banks and governments will put together further rescue packages and economic stimulus programs. It is well known that this can trigger inflationary tendencies in the medium term. Equities remain the recommended asset class for us in 2021, because a bull market driven by liquidity can run much further than one that is “only” fundamentally based.
You may be wondering whether the time is right to enter. Given the situation of a saver with cash and traditional savings, the only mistake you can make is not to act. After all, if you don’t invest your money, you can’t expect it to work for you. What’s more, stocks offer you good inflation protection, decent diversification, an ideal complement to existing real estate assets and, finally, reasonable return prospects.
The past year has shown how important reliable constants are in our fast-moving times. How important quality is, especially when it comes to your assets. We at Wydler Asset Management stand for quick and consistent implementation of decisions made, combined with the necessary calm and prudence. We act instead of just reacting, always with a view to preserving and increasing your assets. Also in 2021.
Do you have questions about a sensible composition of your portfolio, about our funds or about other topics? Just get in touch with us, we will be happy to answer your questions as your contact in asset matters!
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