Real assets to provide protection in 2021

Tuesday 15th December 2020 Penny Pryor

After a tumultuous 2020, investors will be looking for income in a low-rate environment in 2021, according to First Sentier Investors. Global head of distribution, Harry Moore, spoke to Industry Moves about their outlook for the year ahead.

First Sentier's Harry Moore

What will investors be seeking in 2021?

Considering the starting point for 2021 - with low global interest rates and lower expected returns - investors are likely looking for growth, income and alpha. To achieve this investors will focus on regions that provide macroeconomic growth (emerging markets, Asia), sectors that display income and protection characteristics (‘real assets’ such as listed infrastructure, property securities) and active management strategies.

Sustainability has moved mainstream globally, and overall, clients want deep relationships with investment managers who show genuine commitment to responsible investment. We have seen investors in Europe focussing on strategies and managers with strong sustainable /ESG credentials for many years, and we are also seeing European regulations (SFDR) coming into effect in 2021. This sustainable focus continues to build in Australia, where it is critical for clients to see company engagement and evidence of genuine work being done in this area.

Lastly, strategies that outperform in down and volatile markets are more attractive in an increasingly unpredictable environment, and we are fortunate that many of our funds have this characteristic.

Where are the gaps in the market?

Globally, we are seeing large institutions look at disaggregating international equity portfolios and increase exposure to China A shares; review Responsible Investment principles and sustainability strategies; increase exposure to private credit/debt; and look at unlisted infrastructure to increase and diversify returns.

What do you think will be the next big thing in 2021?

Rather than one big thing, there will be an evolution of the trends we are seeing play out as a result of low interest rates, global fiscal stimulus and post-COVID market dynamics. Protecting capital and generating alpha across our suite of capabilities is a key focus in this less certain environment. Income producing real assets (environmentally friendly) seem well positioned for significant growth in 2021 due to low interests rates and falling discount rates, and in a search for yield there is likely continued growth in private credit/ EMD/Asia debt.

A key theme that will continue into 2021 and beyond is that of sustainability – we are seeing this across regions, investor channels, in all asset classes and from a broad range of stakeholders including regulators, politicians, industry groups, pension funds, consultants and asset managers. If ESG offerings proliferate, and sophisticated investors will increasingly want clarity on what managers and their investment process stand for (“just cause”, social licence, etc.).

For more views on what's in store for 2021, click here.

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