U.S. equities, high-yield bonds, emerging markets and listed infrastructure should have a decent 2021 based on several factors outlined by Bob Browne, Northern Trust executive vice president and chief investment officer.
Also, he said, 10-year bonds will gravitate toward 50 basis points while the Federal Reserve will remain on hold and continue its use of quantitative easing. And U.S. growth should be around 4%, a welcome return after a negative 2020.
Northern Trust sees a V-shaped recovery into 2021, especially as businesses reopen and pent-up demand is released, but stocks probably won’t see the “surprisingly robust” returns of the 2020 stock market.
“For five years in a row we’ve had double-digit returns in U.S. stocks, [which] have returned 14% annually for five years,” he told ThinkAdvisor, noting that this year the return will be about 5%, “but going forward, the next five years should bring 25% in gains overall.”
Emerging markets had a rebound in 2020, returning 10% through Dec. 15, and should see a 7.9% return in 2021, largely due to exposure to China, which Browne said will probably have growth of 8% next year.
Having been bullish on high-yield bonds for some time, Browne said “The low-rate environment is going to be good for both high-yield and investment-grade bonds. Cash will be a drag on the portfolio return … We don’t expect the Fed to move in the next year or really anytime over the five-year horizon.”
Northern Trust also sees taking moderate investment risk with a tilt toward listed infrastructure companies, such as those in airports, pipelines and railroads.
Pillars of Outlook
In the 2021 outlook, Browne discussed six themes Northern Trust focused on. Here are snapshots of those:
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