SuperLife

Thoughts on investment strategy

Not too hot, not too cold but just right. This might be what investors are looking for in the investment environment as they try to shake off lingering fears of new waves of COVID-19 variants derailing any hope of a smooth global economic recovery.

Much of the last quarter was spent waiting for news on what type of vaccines will be ready for rollout to populations around the world. Front runners in the race to supply COVID-19 vaccines are pharmaceutical companies such as Astra Zeneca, Moderna, and Pfizer. Most of the coming months will be spent looking at how widely available these vaccines will be, and what the results will show.

In New Zealand, the maiden shipment of Pfizer’s vaccine has recently landed on our shores. The US, UK, Canada, and China, among others, have also approved COVID-19 vaccines for use.

The S&P 500 closed the December (Dec) quarter up 11.7%. Despite a year fraught with uncertainties and massive panic selling in the week of 23 March, the S&P 500 closed 16.3% higher in 2020. The market continued its pendulum swings, often sitting between mild exuberance and a healthy dose of caution.

While giant companies such as Facebook, Amazon, Apple, Netflix, and Google (Alphabet Inc) took centre stage most of last year, the Dec quarter saw cyclical companies (companies whose fortunes are tied to the wider economy, such as tourism and services) make tentative advances.

Year of adjusting to the new COVID era

Investors will remember 2020 as a year of learning to live with COVID-19, and 2021 as a year of picking up the destructive trails left by COVID-19. The question some will ask is: will there be a double-dip recession or will economies move in a straight upward trajectory?

Governments and central banks around the world will be trying to keep a balance between spending money to stimulate their economies while trying not to create excessive national debt burdens.

Investors will be looking for strong signals from governments and their central banks to stay on track with their efforts to support their economies’ turnaround. They will be looking for central banks to stay committed to accommodative monetary policy, and for governments to continue providing financial aid to households and businesses hurt by the economic downturn.

The US market had reasons to cheer as the US Congress in December 2020 cleared the hurdle for a US$900-billion pandemic relief bill to become law. This aid package, which will improve investor confidence, is on top of a US$2-trillion package the Congress approved in March 2020. President Joe Biden also unveiled a US$1.9-trillion stimulus package in January this year which he plans to fast track, with or without Republican support.

The question remains how much more aggressive President Biden’s government will be in handing out government money to ignite the US economy.

In the US, the government is already facing the daunting prospect of managing its largest deficit since World War 2. US public debt is projected at around 107% of gross domestic product in 2023, a historic high. (Source: npr.org) In New Zealand, government debt is expected to hit 52.6% of GDP by 2023 – nearly twice its current level.

What does all this mean for investors?

The months ahead will see the unfolding of further recessionary impact; the recovery process across the world; and the unpredictable nature of a new virus and its variants.

Investors are likely to continue their hunt for value among companies benefitting from a broader-based recovery in the economy. These areas include financial, property, and services sectors.

Here are some thoughts on what to watch out for in the current investment environment.

• The low interest rate environment is expected to provide a level of support for the equities market, particularly for companies whose fortunes are tied to an economy on the mend. Sectors with strong exposure to property, and emerging markets, are also expected to see some demand. Companies whose fortunes are relatively immune to economic fluctuations are also likely to be attractive.
• Fixed income and cash returns will stay unattractive relative to equities. However, the safe haven nature of government bonds means there will continue to be underlying demand. Corporate bonds from issuers with a proven track record of good management will continue to be sought after.
• Giant companies such as Facebook, Apple, Amazon, Netflix and Google (Alphabet Inc), collectively known as FAANG, had standout runs in 2020. A correction in their prices would dampen the current strength of the S&P 500.
• The relative strength of the NZ dollar against the US will benefit investors with hedged global equities holdings.
• 2020 was an important lesson on why long-term investors should avoid selling shares while the market is going through extreme volatility. A better option is to average the cost of investments over time by accumulating regularly when opportunities arise.

SuperLife offers access to 42 funds across different sectors and country exposures, so investors can create portfolios tailored to their needs.

Our Ethica fund is a socially responsible fund with investments in a balance of income and growth assets.

If you are getting close to retirement, the SuperLife Age Steps option lets you set your investment in income and growth assets based on your age. This means as you get older, the proportion of your investment in more volatile growth assets will be reduced, lowering the expected size of the ups and downs in the value of your investment.

If you are concerned about your investments, or would like to find out more about how SuperLife can help with your investments, get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it. or 0800 27 87 37.

These thoughts on investment strategy do not constitute financial advice and do not take into account personal circumstances. They are designed to illustrate possibilities only. As with all investment decisions, what might be the right strategy over the medium or longer term may not pay off over the very short term. No one can consistently predict what will happen over the short term. Those acting upon the information in this newsletter do so entirely at their own risk. SuperLife does not accept liability for the results of any actions taken or not taken based on this information. While every effort has been made to ensure accuracy, no liability is accepted for errors or omissions in this newsletter.