What do our equity portfolio managers expect in 2021 and beyond? We spoke to the fund managers of our small-cap, dividend and sustainable equity strategies and our Global Impact Pool to find our. Optimism reigns, especially over the longer term : as they say, ‘We already hold tomorrow’s winners in the portfolio.’
What do you see as the main themes for 2021 and beyond?
Ivo Kuiper (sustainable equity):
‘All the innovation and creativity going on at companies is helping us make good progress towards meeting the challenges facing society. Europe has some highly ambitious climate goals but a lot still depends on their implementation. The question is how much courage the region displays in creating a more sustainable, greener economy over the next ten years.’
Marjoleine van der Peet (Global Impact Pool):
‘I would add that 2021 will be a success if investors start thinking consciously about what they want to achieve. As part of that, it would be great if their ambitions go beyond financial returns. Sustainable investment is really taking off among our clients, partly because they can see that it’s possible to do well. Some very clear themes are emerging, such as mitigating climate change. People want to see the impact their investments are having on the climate. It’s possible to measure that impact, and Kempen does exactly that. And once you can measure your impact, you can start to manage it.’
Jan Willem Berghuis (small caps):
Investors always look a long way ahead. This past year has been extreme, with a small number of large caps dominating the markets. I expect this effect to lessen in 2021, creating more opportunities for small caps. A number of our holdings are performing very well while others are lagging behind, but that certainly doesn’t mean it’s game over for the companies that are struggling. We apply a long horizon in our investment strategy. There’s no doubt that small caps are often unloved in uncertain periods, yet it’s precisely at these times that investors should take a look at them.
We made a few adjustments to our portfolio at the start of the year. For instance, we no longer hold any airline equities. We’re positive about a US insurer that is clearly trading at below book value. We have lots of new ideas and have already increased our positions in a number of existing holdings. The value segment, which we hold a slight tilt towards, could undergo a sound recovery. I’m looking forward to less extreme markets and more opportunities to generate outperformance.’
Marius Bakker (dividend):
‘The same goes for us. Part of the market seems cheap, even taking into account the recession we’re either already in the midst of or that is on its way. For us as dividend investors, 2020 has been a terrible year. When the economy ground to a halt, many companies decided – or were forced – to suspend dividend payments. Quite rightly, at the start of the coronavirus crisis companies opted to ensure their survival and shield their broader stakeholders at the expense of payments to shareholders.
We’re looking forward to the situation normalising somewhat in 2021 and to companies getting a better grip on the future, which should create capacity for a resumption of dividend payments. Whether that will happen as early as next year will depend on the individual firm, but many companies that have halted dividend payments want to restart them as soon as possible. Some financials that we invest in, for instance, were forced to suspend dividend payments by central banks, even though they were otherwise in good shape. We expect these firms to resume their dividend payments quickly. There was also a great deal of social and political pressure to cut dividends, especially on companies that have received state support.
More companies will undoubtedly get into difficulties. Resuming dividend payments would be great, but only if the company is in a position to do so. Orange, one of our holdings, is a good example: low leverage, a sound cash position, its business model is benefiting strongly from the trends in telecom use. Yet the French government still ordered it to halt payments. It slashed its dividend chiefly due to political motives. It would be great if the companies that are doing well are given the option of rewarding their stakeholders.’
Martijn Kleinbussink (sustainable equity):
‘We believe that 2021 will be more of the same. And that companies will invest substantially in order to accelerate those two trends. Everyone quickly needs to become more digital and sustainable, as these areas have become so important. A lot of demand has been brought forward. The companies we’re talking to are saying that they’ve already implemented the plans they had scheduled for 2025.
This is positive for our strategy: we already hold what we believe will be tomorrow’s winners in the portfolio – companies that have been leading the way digitally and in terms of sustainability. We’re more accustomed to looking ten years ahead, but I’m positive about 2021. This period is a validation of our choices. Companies have definitely started along the path towards progress. I can also see a role here for small-cap companies: they’re often highly specialised and innovative. You can debate stakeholder value and whether you sometimes need to prioritise different interests with the companies in the dividend fund. There’s a great deal of regulation on its way and this also needs to be taken into account.’