On March 24th, Keel Point hosted its 2021 Market Outlook Webinar, featuring an expert panel, including three of Keel Point’s top staff and JP Morgan portfolio manager Phil Camporeale. The discussion covered the 2021 market outlook, diversification strategies, and the proliferation of cryptocurrencies. In case you missed the live event, below, we have included a few highlights stemming from the webinar!
What Is A Key Driver For The 2021 Market?
Both Camporeale and Steven Skancke, Keel Point’s Chief Economic Advisor, see inflation as a central factor in how the Fed will determine whether to raise interest rates. “We’ve had a gap between projected GDP growth and actual GDP growth, and that’s kept inflation at bay. With the surge that we have now, we could close that gap,” emphasized Skancke.
Are There Long-Term Portfolio Themes Investors Should Keep In Mind?
Secular long-term trends are here to stay, which means it is important to consider how to recalibrate the defensive side of your portfolio, and how relying on bonds is no longer enough. “With interest rates low, you get less income off of a bond portfolio. Plus, it provides less protection because there is less room for interest rates to move down further for bonds to go up in price,” said Lyle Minton, Keel Point Chief Investment Officer. In addition, the expected ten-year return for a traditional 60/40 portfolio is only 4.2 percent, which is the lowest it has been in 25 years. Camporeale brilliantly summarized how to find additional outflows for your portfolio, stating that “the best way to get return on top of that 4.2 percent is through tactical asset allocation. Don’t just sit in the 60/40 and get 4.2 percent — if you like an asset class, be impactful with it, and if you don’t, take it out. This is how you can start to generate outflow on top of the 60/40.”
Will Interest Rates Increase In The Coming Years?
It is likely that interest rates will rise – especially given the the recent fiscal stimulus in the United States, the improved success that big countries have had addressing the COVID-19 pandemic, and the expected global growth. As Skancke pointed it out during the discussion, the economy will likely grow due to “the confluence of massive monetary stimulus and massive fiscal stimulus,” which in turn “triggers an increase in inflation rates and certainly an increase in interest rates.”
Should Alternative Investments Be Considered A Strategy To Address The Fixed Income Component Of Portfolio Construction?
Alternative assets can serve as a great way to smooth the ride for fixed income – by diversifying return times compared with a fixed asset or equity counterpart. That said, Minton suggested it is vital to keep fixed income as a part of your portfolio since the protection it offers becomes “more attractive as interest rates move higher,” which ultimately adds more value. In addition, finding asset classes that perform the same defensive function as bonds helps to protect against equity while also diversifying the portfolio.
What Is The Allure Of Cryptocurrencies?
Cryptocurrencies are getting significant attention in the industry today, contributing to their allure as the new “shiny object.” With more than 4,000 offerings available, many people see these assets to be valuable, especially when it comes to Bitcoin.“Bitcoin was one of the first [cryptocurrencies], and it has been developed and promoted more than some of the others,” explained Skancke on reasons why Bitcoin is a standout among the competition. “Bitcoin is the most well-known and the most widely traded.” People are also looking for other alternative currency options, especially since “reserve currency status doesn’t last forever,” added Skancke.
Should We Be Concerned About The National Debt?
According to Skancke, “the short answer is yes. It is the national debt, and it will be a burden on future generations.” Ultimately, “it’s about the legacy and morality of a debt burden that we leave that was used to finance current consumption,” which will have a significant impact on our children and grandchildren.
What Are Some Potential Risks For The Next 12 Months?
Although the market seems convinced that the country is on the precipice of a historic growth period, there two main things to keep in mind. Since growth is such a driver of market performance, if “growth doesn’t come as expected, if corporate earnings don’t grow as expected, then the valuations are going to stay elevated, and that can impact the equity market negatively,” said Minton during the webinar. As we saw this past year, unexpected events such as the COVID-19 can have a drastic impact on the equity market, significantly affecting portfolio performance. While challenging to anticipate, planning for unforeseen occurrences can help mitigate adverse outcomes.
Conclusion
Since 2009, continued monetary and fiscal coordination has allowed passive investors to be highly successful. However, with the trends highlighted above, active management will become more critical, as the nimbleness and the ability to pivot play a central role in portfolio performance. As Robert Mayes stated, “The joint effort of financial planning and active management is going to be paramount to position each of our clients for success as we go forward.”
Watch the full 2021 Market Outlook Webinar Replay
Webinar Speakers
Robert Mayes is the Chief Executive Officer of Keel Point. Mayes was the CEO and founding partner of BlueCreek Investment Partners and joined Keel Point through the BlueCreek/Keel Point merger.
Steven Skancke is Keel Point’s Chief Economic Advisor and works in Keel Point’s Washington D.C. office. He has over 40 years of experience and has formerly served on the U.S. Treasury’s economic policy team and the White House National Security Council.
Lyle Minton is Keel Points Chief Investment Officer and works in Keel Point’s Huntsville, AL office. Lyle has over 25 years of experience in capital markets, trading various cash, and derivative markets across asset classes and was aFounding Member and Chief Investment Officer of Point Clear Capital Management.
Phil Camporeale is a Portfolio Manager in the Multi-Asset Solutions division at J.P. Morgan. He has over 20 years of experience as a portfolio manager, all of which have been with J.P. Morgan.