Political and COVID risks still linger but a number of scenarios offer hope for a bright 12 months ahead, says portfolio manager
After a stormy four years in the White House, and a global pandemic that has rocked the biggest western economy, North American investors may have reason to look ahead with renewed confidence.
Dan Janis is the lead portfolio manager on the Manulife Strategic Income Fund – Advisor Series, which recently celebrated its 15th anniversary. In the second part of his interview with WP, Janis looked ahead to the potential risks and rewards that 2021 might bring. After a rough 2020 for many, investors are looking for reasons to feel good – and Janis offered them hope with his outlook.
He highlighted four areas of concern – the impact of COVID-19, politics, economic growth tied to the pandemic and the minor risk, outside Canada at least, of Brexit. The economic backstop that was put in place by central banks back in March was an overarching positive and then with COVID, attention turned to a vaccine, which now appears closer to a reality given recent test results from Moderna, Pfizer and Oxford-AstraZeneca.
Janis always knew the quest for effective treatment would cause volatility and he suggested the process of introducing treatment will be a gradual one, slowly improving people’s psychology and making them less afraid to spend. This means the businesses that got hurt - hospitality, airlines, restaurants, etc – could come back, maybe at the expense of the tech rally.
He said: “Maybe you have asset allocation shifts from industry to industry. Commodities should do well, so oil should do okay and gravitate more to $60 – and then the dollar goes down so we can take advantage of that. There is a lot of opportunity here in a positive way.”
This bodes well for economic growth coupled with stimulus plans in Canada and – if the parties can agree – the US. Janis also pointed to increased household savings with a pent-up demand for sporting events, vacations and other goods. He added: “We could have a nice development of a spend program next year for the average consumer, and then have that backed by the Fed with low rates and a stimulus plan as the economy picks up.
“The Fed wants us to grow above 2% on inflation and will let that run a little hot; they're not going to come and intervene and stop it. So, if rates gravitate up a little you’ve got to protect on the duration side, while credit should do well, equities should do well and we think the commodity side should also do well.”
There is, therefore, the potential for a rosy picture, although the political risk has not totally abated just because President Donald Trump is exiting the White House. While it’s not the most likely scenario, there is still a chance of the Georgia Senate election going blue, which would spark some volatility. Most expect a split, which would increase the political deadlock but please markets.
The appointment of Janet Yellen as the Secretary of Treasury, meanwhile, was a “superb” move and one that could increase stability, Janis said.
“She understands that potentially a carbon tax could be utilized, she's got a check and balance to make sure that the tax and spend is more controlled. Biden just came out and said, even though we might have a stimulus plan there is probably another one coming, so maybe the second round of stimulus will be a little bit more targeted and I think [Yellen] can do that well.”
