May has rolled in as the vaccine rolls out, and with it there are several investment themes that have become evident. In our newsletter this month we’ll discuss:
- Sustainability as a key long term return driver
- The White House’s $2.25 trillion jobs and infrastructure plan
- Short and long term rate trends we’re likely to see
Sustainability trends boosted by recovery
There is an increased focus on sustainability in developed markets. The pandemic has heightened the need for sustainability, with related ETFs seeing increased inflows in 2020. With climate change at the center of the trend, we see sustainability as playing a major part in asset returns in the future as the economy reconfigures itself and the supply chain becomes reactivated.
Companies with strong corporate governance, a low carbon footprint, and high employee satisfaction are likely to fare well in the recovery, although we are in the early stages of this trend. Sectors to watch within this trend would be technology and healthcare.
Infrastructure plan to have medium term impact
Biden’s $2.25 trillion infrastructure plan is likely to prop up the economy eventually while the plentiful stimulus funding does the trick in the short term. There is a rotation into cyclical stocks, and it’s unlikely we’ll be seeing rates rise in the medium term as the new nominal takes hold. We also see it as improbable that central banks globally would make severe rate increases in this environment.
Rates to remain stable
We believe that nominal yields will be more resistant to increases than they have been in the past. However, as activity restarts and the impact of the stimulus is felt, it’s not unreasonable to expect long term rates to rise in the medium term. The current environment will continue to be supportive of equities as the risk asset of choice.
In our view, these movements are positive for the market and economy, however expectations are theoretical in nature and can never be guaranteed. If you’d like to discuss how any of these concepts may apply to your specific situation, please give us a call.
Sources
5 April, 2021. Weekly commentary. BlackRock. Retrieved from https://www.blackrock.com/corporate/literature/market-commentary/weekly-investment-commentary-en-us-20210405-sustainable-investing-long-game.pdf