Looking back at our 2020 outlook from December 2019, it would be fair to say that we didn’t foresee a global pandemic that would have impacts across the world and keep us trapped at home. Thankfully, our flexible mandate and ability to use a range of capital preservation tools helped us through the initial market plunge and then re-invest once it became more attractive, leading to a strong year for growth equity returns.
The lesson for all investors is that these significant market drawdowns are often hard to predict. What is more important is the ability to be active and have the risk management tools to preserve capital when they arise.
The other big story of 2020 was the bifurcation of markets through most of the year, with COVID-19 winners (core internet, e- commerce and software holdings) accelerating their market share gains as the pandemic began to change behaviours. In effect, these post-COVID-19 world winners have pulled in three to five years of market share gains into 2020 alone, so it follows that their share prices would do the same and pull in multiple years of performance into a single year.
We anticipate that these habits formed in 2020 will stick, with the world continuing the transition to new ways of shopping, working, learning, consuming entertainment and paying.
Looking ahead to 2021, we will look to “follow the money.” With a backdrop of ultra-low interest rates and worldwide quantitative easing – central bank monetary policy to increase money supply in the markets – the case for equities rather than bonds remains strong. With further investment in renewables, batteries and transport, and energy efficiency from the European Union and a Biden-led presidency, our Climate Area of Internet has strong tailwinds.
The major near-term risk to our broadly positive outlook remains the pandemic. While vaccines are on the way, we think equity markets will, for the most part, look through lockdowns as most large companies have the wherewithal to survive and make it to the other side. Where the pandemic would become a greater concern, is if there are any material setbacks in the rollout of the vaccines (loss of public trust, distribution issues, etc.). While we would expect many of our larger holdings to again perform well in a socially distanced world, we would nonetheless expect some negative impact to creep through to earnings from a weaker consumer and business backdrop.
Over the medium to long term, we reiterate that it is far more important to correctly identify an area of structural growth and the companies set to benefit from that growth than to try to predict the direction of the economy or market.
Positioning and opportunities
- We are currently fully invested as we approach 2021 but remain flexible to employ our capital preservation tools against downside risks and market volatility should any identifiable risks materialize.
- As growth investors, our focus remains on identifying sustainable growth trends that are underappreciated and mispriced by the market. Structural earnings growth usually equals structural share price growth, and this remains our key focus.
- The habits formed in 2020 will stick and for the year ahead we have climate, digital enterprise, and e-commerce as the largest ‘Areas of Interest’.
- Climate: We are following the money that is being invested to decarbonize the planet, and this leads us to renewable energy, batteries and transport, buildings and efficiency, and packaging, waste and water beneficiaries.
- Digital enterprise: We continue to invest in the companies that enable the increasingly rapid migration to the cloud.
- E-commerce: Leading platforms have taken a considerable share in 2020 and are investing heavily in their offerings to drive future growth and capitalize on their advantages. We know that many new consumers started using e-commerce during the pandemic, and we also know that consumers spend more across more products as they become more comfortable each year.
- CI Munro Alternative Global Growth Fund and CI Munro Global Growth Equity Fund remain positioned with exposure to other key Areas of Interests, including high-performance computing, innovative health care, internet disruption and digital payments.
- Increased inflation pressuring interest rate rises too early.
- On the U.S. political front, the outcome of the Senate as well as a peaceful transfer of power to president-elect Joe Biden.
- U.S.-China geopolitics.
Source: Bloomberg Finance L.P. and Munro Partners as at December 21, 2020.
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Published date: December 30, 2020.