Investing

So goes January, so goes the year, it is sometimes said. If so, Mr Market has decided that the Covid-19 pandemic is behind us. This has investment implications: the long duration narrative will fade into the background, and “real economy” stocks will outperform again.

The conglomerate of conglomerates, Berkshire Hathaway, has been staging a strong rally in recent weeks. Warren Buffett’s vehicle has risen sharply on the back of its substantial position in Apple, which recently passed the $3 trillion mark. But there is more to it.

An equity portfolio can be approached in various ways. There is a division between domestic shares and foreign shares, or a division based on market capitalisation with the three categories largecaps, midcaps and smallcaps. And there are distributions based on sectors, factors and, of course, regions.

Each classification has its advantages, but also disadvantages. This year, investors should look for shares that do not fit into any of these boxes.

The nice thing about the investment profession is that creativity is more important than striving for perfection. Striving for a perfect world runs the risk of chasing the market. By selecting investments in which all the good news is discounted, a portfolio is created that structurally lags behind the market.

Energy sector equities are having a good year. In recent years, however, investors in the sector have had a rough time of it. With the rise of sustainable investing and the greater awareness that the world needs to move away from fossil fuels to put an end to climate change, investments in companies that are active in the field of fossil fuels are under a magnifying glass.

2021 was the third year in a row where sustainable investors outperformed non-sustainable investors. For a long time, there has been a debate as to whether sustainable investment comes at the expense of returns or actually generates additional returns. Many studies and meta-studies later, the cautious conclusion is that it probably does not cost a return and may even be good for the return.

“Inflation is currently above 10 per cent,” said Bill Ackman, founder and CEO of Pershing Square Capital Management. The billionaire investor fears that if inflation remains at this level, “there will be major consequences for most of us.”

With non-financial media writing about the increasing devaluation of money, inflation awareness is starting to permeate all parts of society. But according to Bill Ackman, the reality is much grimmer than it seems.

Traditionally, the first outlooks for the coming year trickle in from September onwards. With sometimes a quarter of a year still to go, strategists start relating their vision of the economic and financial themes that await investors in the next calendar year. The big question is which investors have actually hit the mark in their outlook for 2021. The reckoning. 

European equities are very attractive right now with a risk premium of around 7 per cent. To navigate in this environment, a barbell strategy between long and short duration equities is appropriate. In this way, one can intelligently combine growth and value.

Pascale Nachtergaele, manager of the Nagelmackers European Real Estate Fund, finds real estate still interesting given the low interest rate environment. Her preference continues to be for logistics property, but she also sees potential in other segments.

Every year, thousands of new investment funds see the light of day. A catchy name, an attractive website and a slick factsheet tout a new, seemingly well-thought-out investment strategy that offers investors a unique opportunity to respond to current investment themes, making use of the proven expertise of fund houses. However promising new investment funds are presented, many do not survive the test of time.