Key investment themes, including sentiment and quality, are indicating that in 2021 attractive opportunities across the global equities market will be found at both cheap and expensive stocks as out-of-favour stocks are showing improving sentiment, according to State Street Global Advisors (SSGA).
Given the price appreciation of public equities reflected a high level of optimism about the ability of the global economy to recover from the pandemic, in 2021 the listed price of publicly traded companies would be expected to be more closely tied to the underlying near-term earnings trajectory and financial strength of those companies.
“While valuation is an important theme when we select stocks, we find attractive stocks at both ends of the price-to-book valuation spectrum. There are cheap stocks we like, and there are cheap stocks we don’t like; expensive stocks we like, and expensive stocks we don’t like,” SSGA’s global chief investment officer Olivia Engel said.
“Since market concentration in expensive, high-sentiment stocks reached all-time highs last August, some out-of-favour stocks are showing some signs of improving sentiment — and creating better opportunities for us to find companies that tick all the boxes.”
Across the developed markets, there were two sectors – tech hardware and semiconductors – that had average of slightly above average value scores, despite being extremely expensive on price-to-book alone, Engel said.
She stressed that one of the most confounding things about financial markets in 2020 was that the mood of the global equities market seemed completely different to the mood of everything else happening to humanity, with the MSCI World index having delivered a positive return of almost 16% in 2020 while the annual earnings of companies within the index were expected to have fallen by 7%.
“We stand on the threshold of a new investment reality as COVID-19 vaccines roll out and monetary and fiscal conditions change in response to a global economic recovery. In 2021, we believe our investment process, which uses a balanced set of attributes to select stocks, will be well positioned to capture the opportunities that markets will offer in this new environment,” Engel added.
Performance of the State Street Global Advisors Global Equity Fund for the 12 months to 30 November 2020
Source: FE Analytics
According to the FE Analytics, since the height of the COVID-19 pandemic, the global equity sector, within the Australian Core Strategies universe, returned 18.88% between the end of March and 30 November, 2020.
Some of the best-performing funds included CFS WS Baillie Gifford Long Term Global Growth (62.23%), Forager International Shares (58.67%) and Perpetual Global Innovation Share Fund (49.25%).
Performance of CFS WS Baillie Gifford Long Term Global Growth, Forager International Shares and Perpetual Global Innovation Share between 31 March 2020 to 30 November 2020
Source: FE Analytics
