Canadian investment pros’ best tips for 2021

Share:

No financial professional predicted the wild ride that was 2020. At least, I haven’t seen anything from last January that spoke presciently of a pandemic that would shut down the global economy and sink markets by more than 35% over a four-week span, only to have stocks end the year off in the black. (The S&P/TSX Composite Index climbed by 2%, while the S&P 500 was up 16%.) 

So, while it’s impossible to predict what might happen in 2021, we’re still going to give it a try. Over the last few weeks, I asked four Canadian investment professionals for their thoughts on the year ahead.

Chris Heakes, vice-president and portfolio manager, Global Structured Investments at BMO Asset Management

We are cautiously optimistic for 2021. With vaccines rolling out, and fiscal and monetary stimulus continuing to be in place in developed markets, we think there is the possibility of 2021 being much better from an economic and recovery point of view. Overall, we’d continue to advocate for high-quality equities as higher-quality companies are better suited to navigating a challenging backdrop. We do still expect some lingering volatility but, again we’re optimistic on a 12-month lookout that business activity should pick up, which will lessen credit risks and potentially allow some beaten-up areas of the market to recover further. As a base case, we would look for high-single-digit- to low-double-digit equity returns in this scenario. 

As for sectors, I’d look to financials, in particular banks—both north and south of the border. I also like dividend-based strategies, which underperformed in 2020, while tech took the centre stage. I think this could reverse and investors could look at high quality dividend-based strategies. Lastly, I like industrials and real estate investment trusts as well. Certainly there are some challenging times to navigate, but with progress being made around COVID-19, these sectors are attractive over the next 12 to 24 months.

David Barr, president, CEO and portfolio manager at PenderFund Capital Management

For the first time in a long time, we are seeing more retail investors participating in the continued upside in small caps. However, whenever a long-term trend reverses, we have to wonder if it can be sustained. Market history tells us that usually these swings don’t just last for one or two quarters. We believe there are many small-cap companies still on their path to recovery and that with the renewed optimism of a vaccine, we are on the verge of seeing strong earnings momentum for these businesses.  

We have been talking a lot internally about a group of companies we call the “ZIPSS”—technology companies that have some similarities to the business models of the popular, high-flying big five tech names like Amazon and Facebook, but which we believe have much longer runways of growth ahead. With the digital transformation we are witnessing, further accelerated by the global pandemic, we believe these companies are poised to create a lot of value for patient shareholders in the years ahead.

The pack is represented by a group of five companies that are amongst the disruptive breakout leaders in their industry. Zillow Group Inc. is disrupting how property is bought and sold; IAC/InterActiveCorp is poised to transform a whole host of services from search and entertainment to finding work and home repair; PAR Technology Corporation is gaining momentum and benefitting from the massive tailwinds caused by the sudden need to re-platform and digitize the restaurant industry; Stitch Fix, Inc. is an online apparel company focused on hyper personalizing proper fit and style of clothing in order to delight consumers; and Square, Inc. is a leading fintech that has become a significant disruptor in the payments and banking industry. These companies have promising economic models to drive profitable growth as they scale; they are amongst the breakout leaders in their respective categories that benefit from positive feedback loops, which tend to make the strong even stronger; and they target industries with massive total addressable markets.