Market Talk

“It almost seems as if we are living in a different universe” says Roel Jansen, co-lead portfolio manager of NN IP’s Euro Investment Grade Credit strategy. If you look at the IG space over the last couple of months, investors seem to have zoomed in on loose monetary policy and the light at the end of the Covid-19 tunnel, and to have tuned out all the other “noise”. The calm market belies a busy work environment, according to fellow Co-lead Alfred Meinema, where there is plenty of interest in the strategy. But with spreads virtually back at early 2020 levels and low yields, what is the appeal of Euro IG? Jansen and Meinema both agree: a lot of the upside is that there is very little downside. With negative yields on safe government paper, institutional investors are moving into IG where they can get a small positive yield without worrying about getting their money back. A trend that looks set to continue.

Financial markets have gotten off to a benign start in 2021, despite civil and political unrest in the US. Prospects for a fairly prompt recovery from the coronavirus crisis look good, and markets have already priced in a fair amount of optimism. Equity markets have risen gradually and US Treasury yields have increased, rising well above 1% in the first days of the new year. “This is perfectly in line with what we expect for this year,” Marco Willner, head of investment strategy, says in our latest podcast. “We also expect further tightening of spreads in the credit space.” Willner’s views and those of NN IP’s multi-asset investing team are presented in “Back to a new future”, NN IP’s outlook for 2021, which defines three possible scenarios for the coming year.

“What we are seeing on the interest rate side at the moment, especially in the US, where higher yields are driven by higher inflation expectations, actually fits quite well in our base case and also our more optimistic scenario,” notes Ewout van Schaick, head of Multi Asset. He expects another good year for equity markets, but with different underlying dynamics. Sectors hit hardest by the pandemic should make a comeback, thanks to central bank policies and fiscal stimulus. Corporate bonds are poised to outperform government bonds, and commodities offer opportunities, particularly in the more cyclical segments.

European equity markets are off to a promising start in the first days of 2021. Risk factors including Brexit and the US elections have dissipated, and with the vaccine rollout underway, it seems likely that the economy will reopen by the summer. In our first podcast of the year, Maarten Geerdink, head of European equities, explains why we believe 2021 should offer a constructive backdrop for European equities and where we still see potential for headwinds. He also discusses why the European recovery plan should bolster small caps, why cyclical stocks should be especially well positioned for outperformance, and how taking an adaptive approach can help investors stay the course over the coming year.

“A year that we never expected, and a year we’ll never forget.” With these words, Ewout van Schaick sums up the defining traits of 2020. The new year will not mark a sudden shift: uncertainty linked to Brexit and US fiscal policy continues to roil markets, and the first few months of 2021 will likely see continued mobility restrictions. Still, a different market environment is probably on its way, marked by a sector rotation in equities and a search for increasingly elusive yield in fixed income.

In our final podcast of 2020, Ewout reflects on how the lessons of this exceptional year will alter his investing approach in the new year and beyond. We cannot predict the next black swan event – but we can prepare for it by staying adaptive, focusing on the right topics, and prioritising sustainability every step of the way.

In the last three or four decades we have become accustomed to a regime where monetary policy does all the heavy lifting. But it has become clear that some parts of the mechanism do not work as well as they used to. Central bank policy was a lot more effective in curbing high inflation than it has been in teasing stubbornly low inflation higher. According to Senior Economist Willem Verhagen, “The job of pushing the economy back to full employment and achieving price stability is now in the hands of fiscal policymakers.” What we can expect from central banks in 2021 and how will the ECB and the Fed need to adjust their policy response to create a benign environment for economic growth?

In this week’s edition of Market Talk, Chief Investment Officer Valentijn van Nieuwenhuijzen and Head of Investment Strategy Marco Willner assess one of the most memorable years in recent memory. They also look ahead to 2021, a year in which economies and markets are poised to recover as the world moves out of the Covid-19 shadow.

Value stocks may finally be on the verge of waking up. Growth stocks have consistently outperformed in the 12 years since the Great Financial Crisis, but the recent positive vaccine news and renewed hopes of fiscal stimulus could spark a sustained revival in the fortunes of value sectors. In this week’s podcast, Robert Davis, senior portfolio manager European equities, explores the deeper theoretical drivers behind this potential shift and explains why it all comes down to fiscal policy action. “Value isn’t dead, but it certainly has been in quite a deep sleep.”

Markets have moved steadily higher in the past two weeks. The outcome of the US election, which had been a source of uncertainty that was keeping investors cautious, offered some stability. Sentiment got another big boost with the news that Phase 3 testing of two coronavirus vaccines showed effectiveness rates far higher than markets were expecting.

A number of aspects regarding these and other anti-corona products in development are still up in the air, such as how quickly they can be manufactured and what logistic problems the distribution process may bring, as well as medical questions such as effectiveness against re-infection.

In this week’s podcast, Principal Responsible Investing Adrie Heinsbroek talks about how the Covid-19 pandemic has affected the future of responsible investing and discusses an NN IP paper that asks academics and investors from a range of countries to give their take on this topic. He explains why we now have a chance to step up our game. Why the boundaries between economy and society, and financial and ESG information are becoming increasingly blurred. Adrie also explores how the behaviour of governments, companies and individuals – the key stakeholders – are inextricably linked and will shape our future. Asset managers too can play a vital role in helping to finance change and change finance. But it won’t happen overnight. “It’s a transition, not a revolution.”

The winners of yesterday’s elections in the US may not be known for days or even weeks. A handful of key states have yet to complete counting ballots, and President Donald Trump has already said he plans to challenge the vote count in the courts. A “blue wave”, whereby Democrats take back control of the Senate as well as the White House, may not be impossible but is looking far less likely than markets may have thought.

While Trump’s remarks may only serve to increase and prolong the uncertainty regarding the election outcome, markets are so far remaining calm. In this week’s podcast, Ewout van Schaick and Marco Willner discuss how they positioned their portfolios going into the election, what the chances are now of badly needed fiscal stimulus, and what it all might mean for the various asset classes.