CIO says many of the Biden themes could be here to stay and that it's not too late to invest
The consensus market outlook is of a sharp and somewhat glorious economic rebound once we’ve managed to fend of the second wave of this vicious pandemic.
With vaccines now being distributed and the divisive Trump administration out of the White House, the horizon looks less uncertain. Human nature being what it is, however, many investors will attempt to time the expected 2021 surge.
Sadiq Adatia, Chief Investment Officer, SLGI Asset Management Inc, though, warned this would be foolhardy and pointed to last year's market performance as ample evidence why it's a risky strategy. Markets, he added, are looking ahead six months to when vaccines are rolled out, which explains why many are hitting all-time highs despite the continued pain of the pandemic.
He said: “You’re not investing for three or six months here, you're investing for multiple years. If you feel that markets are going to be higher by the end of the year, you should start investing right now. If you are worried about things in the short term, look for ways to hedge some of that short-term risk, while still keeping your foot on the pedal.
“I've always used the analogy of driving a car; you always have airbags in your car, just in case. Keep some of those hedges in place but don't take your foot off the pedal because you still want to get to where you want to get to.”
He recommended looking for themes that are going to play out over multiple years – that way timing is not an issue. It’s an approach that is relevant today more than ever, a day after a new administration took control of U.S. politics on the promise of huge financial stimulus, infrastructure spending and emphasis on the likes of clean energy and marijuana.
Adatia is optimistic about the year ahead and expects a Biden reign to feature calmer markets and less social unrest. Much of the tensions between the U.S. and other countries will also start to diminish – although he said Russia will get worse – and, with a Blue Wave, the chances of short-term stimulus being approved has increased. Tax increases are likely to be kicked down the road until the economy is on a more solid footing.
Many of the Biden-friendly sectors have been flagged, of course, and priced in to some degree but Adatia said it’s not too late to invest even if the risk-reward has come off somewhat.
He said: “This is not a three- or six-month plan, this is a multi-year plan. Even if Biden does not come back and re-run four years from now, there's a good chance that the Democrats continue and these themes continue as well.
“Sure, things are a little expensive in those funds, given where things have run off. But when you have a multi-year plan, there's still going to be opportunities to get in. I would never jump fully into it at one point in time, I would do it gradually. And there's no doubt we'll have pullbacks in markets and pullbacks in those sectors.”
Clean energy will be an important policy area for the new President, including aspects like solar energy, lithium and car automation. Cybersecurity and infrastructure also look set to benefit. Taking small trades across these themes rather than dive fully into only one also makes the most sense.
And he urged investors to position themselves correctly ahead of the expected surge later in the year, and not be put off by valuations.
“People will say the markets are expensive, and have gone up so much,” he said. “But you have to look at what you mean when they say expensive. That might be expensive, compared to their own history, but compared to the alternative, compared to where interest rates are at and compared to what you might get out of the bond market, it’s not that expensive.”
On top of this, with the stimulus package, the positivity about the opening of economies and a lot of pent-up demand among Canadian and U.S. consumers, there are reasons for optimism.
Adatia said: “There will be really good positive momentum that comes out of it. Similar to what we saw actually in the third quarter of 2020, where people felt a bit of optimism again. We saw a surge and I think you'll see that again this year as well.
“But you can't time it and that's why I say, invest today for that possibility. For sure, there will be hiccups. No market goes up straight, and those hiccups might just be opportunities for you to add more money to the markets.”
