MAPFRE AM experts held a meeting on Thursday, December 17 with the media to outline key factors driving the markets over the next 12 months.
If 2020 has been a turbulent year as a result of the pandemic, 2021 may bring with it a favorable environment for equities, especially on the European bourses; European sovereign debt will continue to play a key role as a source of liquidity, while alternative assets could help supplement portfolio returns in the current low rate environment.
The latest movements in the asset management business and MAPFRE AM itself were also analyzed at the meeting. José Luis Jiménez, MAPFRE’s Group Chief Investment Officer, declared “2020 a very positive year in the context of a very difficult backdrop.”
Álvaro Anguita, CEO of MAPFRE AM, also highlighted the exceptional performance of the range of socially responsible investment products, which is one of the fund manager’s hallmarks. Specifically, he highlighted the performance of the Good Governance Fund, Inclusión Responsable and Capital Responsable, which comfortably outperformed the market against their respective benchmarks. “SRI and financial healthy returns feed into each other. The most financially sustainable companies are those that dedicate the most resources to sustainability.”
Regarding investment strategies for 2021, Javier Lendines, general manager at MAPFRE AM, identified the following significant market levers:
Since Pfizer’s announcement on COVID-19 vaccines in November, the market has seen a rotation that has mainly benefited mainly those sectors that were hardest hit during the first half of the year. This situation “will continue in the coming months, especially during the first half of the year”, and it will be noticed more in Europe than in the US, “given the greater weight of the technology sector on the other side of the Atlantic”, according to Lendines.
That is not to say that the technology sector doesn’t present opportunities, because in fact it is one of the sectors that MAPFRE AM has identified as an opportunity for 2021, but selectively so, given that “not all companies are going to perform homogenously”, which is why the analytical capacity provided by active investment is so important. Other sectors with potential are those related to health, sports, renewable energies and insurance, “due to the good financial health and strong risk control evident in the sector.”
Within European equities, the Spanish market is not among those the MAPFRRE AM experts consider to have the most potential for revaluation, “due to the excessive weight of banking on the Ibex, and given that we think that the banking sector is not going to do especially well in 2021, so we would be more upbeat about other markets like Italy, “explains Lendines.
Sovereign debt will continue to be a key source of liquidity for long-term institutional investors. “There will be no rate hike, and investment in public debt must remain as an important part of our portfolios,” adds Lendines. The forecast is that European interest rates will remain at very low levels, with narrow risk spreads and room for even greater narrowing. In fact, Spain’s risk premium could drop by as much as 40 basis points throughout 2020.
Prudence must prevail though, since the increase in debt being observed in many countries as a result of fiscal stimulus programs must at some point “be priced in by the markets; perhaps not in 2021 but in the coming years, and this will translate into higher interest rates.”
Investors will have to continue diversifying their portfolio in 2021 to cope with the low returns generated by traditional assets in the current context. This means continuing to explore investment opportunities in real estate, infrastructure, venture capital or corporate debt, which according to Lendines, should represent 10 percent of an investor’s total portfolio.
Regarding the market unknowns for 2021, key concerns revolve around the continued evolution of the pandemic and the ability of vaccines to rebuff the adverse economic effects of same. Attention will also have to be paid to the consequences of Brexit and the economic policy of the new administration in the United States.
Finally, another significant challenge in Europe will materialize on the back of the differing post-COVID growth levels between countries and the need for the European Central Bank to develop a common monetary policy for all of them.
Evolution of the sector and MAPFRE AM
Jiménez is also very satisfied with the evolution of the different alliances that the group has signed in recent years, such as with Boyar in the US, La Financière Responsable in France, Macquarie in infrastructure, Altamar in private equity and “our strategic partner Abante, with who we are very satisfied and hope to jointly develop new projects in the months ahead.”
The asset management industry is “firing on all cylinders. It is a very fragmented market and one where there may be consolidation movements, and at MAPFRE we are willing to take advantage of those growth opportunities we consider interesting.”
MAPFRE AM is also making great strides in broadening its international distribution capacity. In Luxembourg, close on one billion euros is under management, and in London, Álvaro Anguita explained that the Group has just registered some of its main funds in the British market, where it aims to market them to institutional investors in the near future.