Three themes for 2021: WTW

Willis Towers Watson (WTW) has identified three major themes for investors in 2021, covering areas such as superannuation, Asian investing and climate change.

The three themes were seeking diverse sources of return, managing risk and developing a comparative advantage.

1. Seeking diverse sources of return

The firm suggested investors pay greater focus to China, which was opening up to foreign investors, to manage their overall risk. The country had managed to emerge from the pandemic earlier than other countries and was seeing a return to positive growth.

Leslie Mao, head of equities, said: “Building exposure to China is best viewed as a journey that balances the pace of market improvements with the imperative to achieve structural geographical diversity in a global portfolio.

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“Nonetheless, it is our view that China warrants a much higher exposure in an investor’s portfolio over the long run. As importantly, a standalone equity allocation to China is the better way to obtain the compelling diversification and potential excess return benefits for those with the ability to take advantage of this exciting opportunity set.”

2. Managing risk

The volatility of 2020 had highlighted how important it was for investors to pay attention to their risk management and ensure they had adequate diversification. This included risks such as climate change and the Australian bushfires which required urgent action.

Louise Lew, head of sustainability, said: “Historically climate change has not been factored into market pricing and so incorporating climate change into investment decision making can either add value, reduce risk or both.

“We think that investors should position their portfolios to be ahead of both the inevitable policy response as well as the inevitable legal response to climate change and so we are advising our clients to take action now to support the transition to a net zero emissions economy and manage climate-related risks and opportunities across their portfolios.”

3. Developing comparative advantage

This theme was related to the introduction of Your Future, Your Super, a measure of identifying underperforming super funds which was announced in this year’s Budget, which presented a “great opportunity” to improve consumer outcomes. The firm said it looked forward to working with funds to “leverage their comparative advantage” when the measures were enacted.

Tim Unger, senior investment consultant, said: “The time-honoured approach by funds of being simply focused on outperforming one another has been thrown a curve ball in the form of a different performance test that could potentially jeopardise their very existence.

“We look forward to working with funds as they forge their own paths through 2021 and beyond – to leverage their comparative advantages, to up their game to remain competitive, or merge with like-minded partners in the best interests of their members.”