‘We’re riding one of the most remarkable market rebounds of all time’

However, CEO says it’s important to reflect on a sombre 2020 and warns investors not to get ahead of themselves

‘We’re riding one of the most remarkable market rebounds of all time’

Advisors all over the country are yearning for the holidays; a chance to nurse the bruises from a particularly tough year. While the tremors from the speed and depth of March’s drawdown are still being felt, remarkably, markets are soaring once again. And that’s before more stimulus and the recovery that's expected once travel and household spending are unleashed.

It’s enough to dizzy the most pragmatic investor. But AGF Investments CEO Kevin McCreadie told WP that a moment of reflection on the tumultuous past nine months is needed before we recognize we’re “riding one of the most remarkable market rebounds of all time”.

Many people will be emotionally scarred and many, sadly, will have lost loved ones. Their lives will never be the same again. More broadly, McCreadie added, the pandemic has exposed “fault lines” in our polarized society. It’s a sombre scenario and not a time for party hats. And yet, 10 months after the crisis began, markets appear in rude health. McCreadie, though, warned advisors not to get too far ahead of themselves.

He said: “While the beginning of a new economic cycle seems inevitable, the timing of it remains tenuous and in the first few months of 2021, markets may become even more volatile before assuming a more favourable trajectory in the second half of the year.”

The gap between now and the full implementation of the vaccines is particularly perilous and increases the prospect, if left unchecked, of a double-dip recession in at least some regions of the global economy.

“It will be several months before enough doses are manufactured and made available to quell the global spread of the virus," he said. "At the same time, regional differences in vaccine availability will also have an impact on the breadth of the economic recovery going forward.”

The onus is on governments and central bankers, therefore, to continue their support. McCreadie stressed that time is of the essence and, in the U.S., a “skinny” stimulus bill before year end, with the hope of more later, would be welcomed.

In order for investors to protect against downside risks but also take advantage of the opportunities that will become evident as the economic recovery picks, asset allocation is crucial.

Within the context of a 60/40 portfolio, AGF advocates for a bias towards equities over fixed income. Then within equities it backs a barbell approach that focuses on quality growth companies but which tilt towards cyclical stocks, a move designed to navigate the near-term.

McCreadie said: “As a vaccine takes hold and economic progress becomes even more certain, a rotation towards those areas of the market that have done well in prior upturns should become more emphasized. Emerging markets, for example, tend to do particularly well in new economic cycles, as do commodities and those sectors that are most tied to the early stages of an expansion such as financials, consumer discretionary and industrials.”

Fixed Income will continue to be important and provide important capital preservation, he added, despite the possibility of rising yields. The topical “work-from-home” stocks may be due a correction but they should remain viable long after COVID-19 is in the rear-view mirror. Alternatives, too, including long/short hedging strategies and asset classes such as private credit, offer diversification.

McCreadie said: “Investors can take comfort in knowing the worst of the pandemic will soon be over, but what could end up being a very good year for the global economy and financial markets may not necessarily start out that way.”