Vaccine gap presents more buying opportunities, says portfolio manager

Ahead of Franklin Templeton's 2021 Global Investment Outlook, speaker explains why he is bullish … with an asterisk

Vaccine gap presents more buying opportunities, says portfolio manager

The next couple of months present a challenge for investors – and a likely fiscal air pocket – but Franklin Templeton Investment Solutions’ 12-month outlook is optimistic.

Michael Greenberg, VP and Portfolio Manager, told WP that with Moderna and Pfizer posting promising COVID-19 vaccine trial results, more fiscal support expected in the new year and household savings growing, the investing environment looks promising, especially with inflation under control.

Greenberg will delve deeper into these themes when he presents at Franklin Templeton’s 2021 Global Investment Outlook virtual event, where its experts will provide their views on trends and factors they believe will affect investment outcomes next year and beyond.

The event will also feature keynote speaker Stephen Poloz, the former Governor of the Bank of Canada, who will analyse what he thinks lies in store for the economy and capital markets.

The event takes place over two days. The English presentation is on Tuesday, December 1, 11am-1pm ET, while the French presentation is on Wednesday, December 2, 1pm-3pm ET. Jeffrey Simpson, a Canadian journalist formerly of The Globe & Mail, will moderate Poloz’s session for the English event, with Esther Bégin, French news anchor at CPAC, documentary filmmaker and author, moderating the following day’s French presentation. To register, click this link.

Before Poloz’s remarks, the presentation from the Franklin Templeton Investment Solutions speakers will be split into two parts. In the first, on both days, Bill Yun, Executive Vice President, will explain his seven-year outlook. In the second, Greenberg and Ian Riach, Senior Vice President, Portfolio Manager and CIO of Fiduciary, will present Franklin Templeton’s 12-month outlook; Riach for the English event and Greenberg for the French.

Greenberg is bullish on the medical advances that will fight the virus. An obvious statement given recent trial results, he admitted, but recognition must be given to the sheer amount of money and brainpower at play.

There are still issues with vaccine delivery and storage but his outlook on the virus is more optimistic over the coming 12 months. Greenberg warned, however, that in the short term, the pandemic is expected to get a lot worse.

He said: “If there is a gap, that for us creates more buying opportunities compared to us needing to run for the hills because we’re more positive [long term].”

It’s an outlook based not just on medical advancements but on monetary and fiscal policy Greenberg thinks will remain fairly accommodative. There is no expectation that rates will be raised anytime soon, and governments are likely to continue their support via more fiscal policy.

He added: “With fiscal policy, there's a little bit of an air pocket right now but once we get into the new year and [U.S. President-elect] Biden is in place, we will see more fiscal support. And people have also got a lot of savings – there is definitely some pent-up demand – so I think that's a pretty good environment, especially given our view that we don't expect inflation to be out of control, forcing central banks to take the punch bowl away too early.”

The quest to get a vaccine to market is far from complete, however, and the portfolio manager said the journey will not be a straight line, meaning there will be volatility in the market. Franklin Templeton Investment Solutions, therefore, is not going into aggressive mode but is poised to buy when equity or credit sells off.

Greenberg backed the K-recovery outlook and this environment – where some sectors of the economy are not recovering to the same extent – lends itself to active management.

He said: “If you look at certain stock markets, like Canada, US and China, they're fairly top heavy. There's a couple of names that tend to dominate those indices. Those companies are still great long-term companies but there is some risk in those indices of just being indexers. We’re bullish with an asterisk, in the sense you probably want to have active management.”

Franklin Templeton’s outlook event will also give its investment experts a chance to explain their strategies and how they build and position robust portfolios from a strategic long-term sense, and how they use its active mandate to capture additional value.

One area that has been a hot topic for a while among investors is the role of fixed income and bonds. With yields so low, what exactly is the role of bonds and should investors even hold any in their portfolio? Greenberg said that will be a debate he will explore in his presentation, building on the firm’s recent white paper titled, Is the 60/40 Portfolio Dead?

He added: “As a diversifier, we still think fixed income has credence, but our view is you need to be dynamic and discerning. You don't want to just blindly buy the US 10-year and close your eyes because different bond markets have different yield levels.

“If you look at Japan versus Canada, for example, there's arguably more protection in the Canadian government market because yields have potentially further to fall. What we're suggesting is you still want to have that duration in your portfolio because that is your anchor against equity and because we do believe that negative correlation will still continue. But you want to be dynamic and discerning on which bond markets you want to have exposure to.”

He also believes that the fixed-income market is currently hard to navigate for the average investor; do they opt for bank loans, ABS (Asset-Backed Security), MBS (Mortgage-Backed Security), CMBS (Commercial Mortgage-Backed Securities), preferreds, high yields, floating rate or investment grades? Do they hedge or not?

Fixed income is becoming very difficult to manage but this didn’t matter, Greenberg argued, when you were getting 6-8% for buying a Canadian government bond ladder.

He said: “With a low-return environment, we think you're going to have to be more dynamic within fixed income. We're doing that at our level within multi-asset portfolios, but the underlying managers we're using are also experts in their field and are able to access some really unique fixed-income markets. We think this is going to be really important in order to get that extra yield.

“You don’t want to be loading up on risk in fixed income to get yield, and then also load up on equity risk – you’re just doubling up and your fixed income is not going to be there for you in times of need.”

For more details and to register for Franklin Templeton’s 2021 Global Investment Outlook event, click this link.