Waiting on a recovery that’s already priced in

By Mark Burgess | January 13, 2021 | Last updated on November 29, 2023
2 min read

With equity valuations very high in some markets while the global economy continues to struggle through the Covid-19 recession, forecasts for 2021 may seem especially challenging. Murdo MacLean, client investment manager at Walter Scott & Partners Ltd. in Edinburgh, Scotland, is taking the situation in stride.

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“In many ways, the outlook for 2021 is the same as any other year,” he said in an interview last month. “What we know for sure is that things we do not expect, or do not factor in yet, will undoubtedly happen over the course of the year.”

The divide between record highs for North American equities and the worsening pandemic even makes it hard to tell whether investors are in the late stages of the cycle that began in 2009, or the early stages of a new cycle that started after markets tanked last year, a report this week from Richardson Wealth said.

Equity, bond and commodity markets are all pricing in a strong recovery, the report said. “The bulls are in such control that even the storming of the U.S. Capitol building barely registered a wobble in the equity markets’ ascent.”

MacLean said the economic recovery that’s expected to follow the distribution of vaccines has already been priced in.

The great reopening can’t happen soon enough for the retail companies in his portfolio, such as Massachusetts-based TJX Companies, whose subsidiaries include TJ Maxx, Winners and Marshalls, and Zara owner Inditex, based in Spain. MacLean manages the CIBC International Equity ETF.

“These retailers certainly are looking forward to the time when they can open their stores fully, and people can shop again in a normal way,” he said. When that happens, he expects those companies to be among the portfolio’s better performers this year.

MacLean said the best approach is to maintain an investment strategy focused on strong companies.

“I think it’s an easy trap to fall into to assume that once coronavirus is dealt with, we can all get back to happy days again,” he said.

“Steering a safe path through all of that is best done, in our view, by being invested in what we consider to be among the very best businesses around the world, and by maintaining vigilance around valuation.”

For the coming year, that means more emphasis on environmental, social and governance (ESG) investing.

“As long-term investors, getting to know the business that you’re investing your clients’ assets in and understanding whether they are a good corporate citizen or otherwise is really part and parcel of the job,” he said. “It goes alongside all the other analysis that you do.”

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Mark Burgess

Mark was the managing editor of Advisor.ca from 2017 to 2024.