2020 was a yr like none different on so many various fronts, and I’m certain that we’re all completely happy to show the calendar web page to a brand new yr that’s hopefully stuffed with good well being and a few type of a return to relative normalcy.  As you might recall, our general theme for 2020 was initially, “The Yr of the three Large E’s” – Earnings, the Economic system, and the Election, given the interconnected nature of those three components. Nevertheless, 2020 shortly changed into the “Yr of the COVID-19 Pandemic,” the place shares and the economic system have been initially devastated by the lockdown measures that have been put in place to assist restrict the unfold of COVID-19 and later staged outstanding recoveries into the top of the yr. As efficient vaccines and therapeutics are actually changing into accessible, we consider that the overriding macro theme of 2021 will probably be “The Reopening of the World Economic system.” On this regard, under are our “Prime 10 Funding Themes for 2021” on your evaluate and consideration, remembering that whereas 2021 might become much less risky than 2020, the times of heightened bouts of volatility are actually not behind us.

1. Areas of COVID-19 Management Proceed by way of 2021 – how people and companies function and work together continues to evolve, and that charge of change has by no means been faster than it’s proper now. This evolution has occurred in areas together with know-how, commerce, and well being care. We contend that the already speedy evolution going down, mixed with the power of change introduced on by the COVID-19 pandemic, will enable the areas of know-how, commerce (notably E-commerce), and well being care to proceed to supply financial and market management for years to return.

2. Count on extra Revolutionary Healthcare Options from Biotech – the COVID-19 pandemic served as a painful reminder of the necessity for progressive healthcare options worldwide. Nevertheless, healthcare improvements have been wanted earlier than the onset of COVID-19 and can possible nonetheless be required to assist deal with and remedy different uncommon and power illnesses sooner or later.  These progressive options usually come from smaller-cap Biotech corporations, that are then pursued as take-over targets by larger-cap pharmaceutical corporations. We do not anticipate the speed of Biotech mergers and acquisition (M&A) exercise to decelerate significantly anytime quickly.

3. Transformational Applied sciences for a Reworking Society –whereas we anticipate the gradual re-opening of the worldwide economic system all through 2021, many pre-COVID societal norms have undergone immense transformation. Society will possible proceed to speak, work, store, and educate extra remotely than they ever have earlier than. Know-how will proceed to help with this societal transformation. Particularly, transformational or revolutionary applied sciences, equivalent to synthetic intelligence, robotics, blockchain, and even 5G, will probably be of paramount significance to people, companies, and governments. These transformations’ crucial nature ought to assist present development potential for the shares of well-run and well-positioned corporations offering most of these applied sciences.

4. Extra Exponential Development for E-commerce – the transition from conventional, in-person retail gross sales to on-line gross sales was nicely underway earlier than the COVID-19 pandemic due, largely, to the pace and comfort of buying on-line. Think about that E-commerce gross sales accounted for simply 4.2% of whole U.S. retail gross sales in Q1 2010 and lately accounted for 16.1% in Q2 2020, based on Statista. COVID-19 has accelerated the transition from conventional brick-and-mortar buying to on-line commerce additional. For instance, throughout the peak of the COVID-19 related lockdowns in April 2020, U.S. E-commerce elevated by 49%. It’s also estimated that E-commerce gross sales will enhance by roughly 36% throughout the 2020 vacation buying season, whereas conventional brick-and-mortar gross sales are anticipated to lower by practically 5% over the identical timeframe. E-commerce is not only a short-lived fad, it is right here to remain, and funding alternatives exist for corporations that derive income from their general E-commerce ecosystem roles.

5. Smaller Caps Positioned to Outperform Bigger Caps – Giant-cap U.S. shares have been on fairly a run. Think about that the large-cap dominated Dow Jones Industrial Common and S&P 500 Index each hit all-time highs in 2020. The S&P 500 even staged a outstanding restoration from the low closing stage of 2237 recorded on March 23, 2020. Think about that the S&P 500’s closing stage of 3663 on December 11, 2020, equated to a 64% rebound off of the March 23 backside. Nevertheless, this document run has resulted in some lofty valuations as the value/earnings ratio (P/E) of the S&P 500 as of December 11, 2020, was 28.65, in contrast with a 10-year common P/E for this index of 18.40. This traditionally excessive valuation stage doesn’t counsel that U.S. Giant-cap shares cannot, or will not, transfer increased within the New Yr. Quite the opposite, buyers will possible must be much more selective to seek out further pockets of development alternatives. One further pocket to think about is smaller-cap shares whose valuations are usually not as stretched as their larger-cap brethren and traditionally carry out nicely during times of financial recoveries.

6. Worldwide Equities Return to Prominence – whereas many buyers perceive the advantages of diversification, the notion is commonly not completely practiced in the case of geographical diversification. Research have proven that many buyers are likely to exhibit residence nation bias and are usually under-allocated to worldwide shares. This bias might have lately proved helpful as these similar buyers have loved the relative outperformance of the U.S. inventory markets in comparison with their worldwide developed counterparts during the last decade. Nevertheless, along with their potential diversification advantages, there are a number of causes that worldwide shares needs to be in your radar for 2021, together with, however not restricted to, an anticipated weaker U.S. Greenback, engaging relative valuations, and the anticipated international rollout of COVID-19 vaccines.

7. Sustainable Influence Investing Goes Mainstream – many research have concluded corporations with superior environmental, social, and governance (ESG) profiles have often met, and infrequently exceeded, the efficiency of comparable conventional investments. These efficiency outcomes are on each an absolute and a risk-adjusted foundation, throughout asset lessons, and over time. Because of this, feeling good in regards to the corporations that one invests in and the returns that their shares might probably generate are not mutually unique outcomes. For these causes, we see continued adoption of ESG-oriented methods within the New Yr and consider that sustainable influence investing will quickly develop into a part of the mainstream of the general funding panorama.

8. Dividend Paying Shares Used for Development and Earnings Aims – dividends accounted for 42% of the whole return of the S&P 500 Index for the interval 1930-2019. After recognizing the significance of dividends, the subsequent step is to seek out corporations with a historical past of accelerating their dividends and fewer more likely to minimize or droop their dividends. This process turned more and more necessary and but tougher throughout the COVID-19 pandemic. Based on CNBC, 639 corporations both minimize or suspended their dividends throughout the peak of the shutdown orders that have been put in place throughout the second quarter to assist restrict the coronavirus’s unfold. This marked the very best variety of dividend cuts or suspensions since 2009. Wanting forward, strain on dividends ought to subside in 2021 because the economic system continues to get better. Additionally, we might anticipate buyers embracing dividend-paying shares as a substitute for lower-yielding mounted revenue devices.

9. Preferreds develop into a Most popular Supply of Earnings Potential – one safety sort that income-oriented buyers are likely to overlook about, or presumably are usually not conscious of, is most popular securities. Most popular securities characterize possession in an organization and have each bond and stock-like options. They often pay a set revenue, have a par worth, maintain a credit standing, and commerce on a significant change. Sometimes called “most popular shares,” Preferreds additionally typically expertise much less every day volatility when in comparison with frequent shares, have dividends which can be paid out earlier than dividends to frequent shareholders, and usually have a better acknowledged dividend payout than the company’s frequent shares – and even the corporate’s bonds in some instances. Because the Federal Reserve has indicated, it’s possible that they’ll maintain charges close to zero by way of 2023 or till substantial progress is made on the inflation and employment fronts. For all these causes, we count on Preferreds to develop into a preferred selection for income-oriented buyers.

10. Demand for Municipal Bonds Stays Excessive – we contend that demand for municipal bonds (and municipal bond methods) will possible keep robust for the foreseeable future as income-oriented buyers proceed their seek for engaging yield-based alternate options on this difficult yield atmosphere, significantly these buyers in increased tax brackets. Whereas a further provide of municipal bonds, each tax-free and taxable, could also be dropped at market in 2021 to assist fund crucial infrastructure tasks within the U.S. because of an infrastructure spending invoice that can possible be handed within the New Yr, this new provide has a excessive likelihood of shortly being absorbed by yield-hungry municipal bond buyers. Different potential benefactors of an infrastructure spending invoice would be the American folks, basically, from an employment perspective and likewise sectors of the Equities market, together with supplies, industrials, power, utilities, and telecommunication companies.

Finest needs for completely happy and wholesome 2021 to everybody!

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Disclosure: Hennion & Walsh Asset Administration presently has allocations inside its managed cash program, and Hennion & Walsh presently has allocations inside sure SmartTrust® Unit Funding Trusts (UITs) in step with a number of of the portfolio administration concepts for consideration cited above.