Looking towards 2021 - United Advisers Marine

17th Nov 2020

Looking towards 2021

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Joe Biden is the US President-elect, Brexit is happening and a COVID vaccine is on the cards. The end of 2020 is looking very different to the first half of the year. In our latest client webinar, I spoke to Joe Palmer about his view on the big events of 2020 and how they may impact market performance in 2021.

Below is the full video of the webinar and some key insights that Joe shared with us. One of Joe’s key messages came at the end of the session:

I think the best advice I can give is: go back to your original fact-find, look at your investment time horizon, and really stick to the goal and plan with your financial adviser.

I know these can be scary times but it’s nothing we haven’t seen before, to one degree or another.

Why has the US market fared better in comparison to the UK?

Because the dividends that the companies in the US were reporting were still projecting to pay those dividends and increase them*.

Then you’ve got those that have cut them, companies that produce them, companies that are flat and companies that still project to increase. Many of these companies have cut their dividends because the earnings have been hit, but the US has been fairly resilient.

* see bar graph 11 minutes into the video

How is the US market likely to react now that Biden is President-elect?

Biden has made it fairly clear that there will be a reversal of the tax cuts Trump implemented. He will look to increase the federal minimum wage.

We believe [we will see] a softening of tariffs with China in particular and there should be some sort of higher infrastructure spending.

What does this mean for equities? Does a democratic government or Biden government mean that companies and corporations are going to have to pay more tax and, therefore, have less profits and a reduced share price? That is the concern.

We’ve run a few of the numbers at Guinness as to where we see things going and, ultimately, whether Biden is good or bad for equities. We believe a Biden government could actually be fairly positive for equities in the US.

Remember that in 2016 pretty much the first thing Trump did when he got into office was reduced tax from 35% to 21%.

Now it’s indicated that the Democrats will reverse half of this and maybe increase that from 21% to 28%.

What does this mean in terms of the effects? In 2019, the S&P 500, which is the benchmark index for the top 500 companies, was $153 a share. If Biden was to impose the increasing tax, we believe on a year-on-year basis that would decrease or hit 2020/ 2021 earnings by about nine bucks per share.

Next is the federal minimum wage, which we know Biden’s going to increase, and looking at how that’s going to have an affect on companies. There’s clearly going to be some winners and losers. If we look at the type of businesses that are affected by minimum wage increases they tend to be in the hospitality space or food industry where, low, skilled or cheaper labor is used. An increase in minimum wage would hurt those companies more than say an IT company where they’re not so reliant on workforce. So whilst it’s paid for the economy to increase minimum wage, it should ultimately lead to high consumption.

I think the one thing, when it comes to China, is that the Democrats and the Republicans agree that China is a problem when it comes to trade. This is high on the agenda for Democrats and Republicans.

Having said that we believe Biden’s approach will be far more international, far more civilised if you like. He will negate the knee jerk reactions that we saw from Trump. So all in all, we actually see that Biden should remove some of the tariffs or certainly soften them.As a result, tensions over the next 12 to 18 months with China should ease.

So, let’s put that into numbers. As I mentioned, in 2019 S&P 500 earnings were $153 per share. If we then take the tax increases I mentioned earlier, we think that would hit earnings by $9 per share. We think the minimum wage increase will have a very minimal effect on tariffs.

Given the amount of tariffs that Trump has put in place, if we reverse some of them that could increase earnings by $12 per share. All in all, what you’ll see at the end, is that the overall impact of a Biden government is, although small, fairly positive. That is, certainly not negative in the way the market predicted in the lead up to the election.

* slides to accompany this start from 14 minutes into the video

How might Brexit impact market performance?

The FTSE 100 is very much seen as a global index. The reason for that is if you take the FTSE 100 and you look at the revenues that come into these companies, 77% of revenues in the FTSE come from an international source. So I think it’s fair to say if there was a no deal scenario and we had to go to WTO terms, you could probably see a pretty steep decline in sterling. However, as 77% of earnings come from an international base, the falling sterling should be a pretty good stimulus to UK companies.

That is why, typically within the Brewin Dolphin portfolios, we currently see the UK market as one, a bit of a hedge. Should you get a no deal scenario, UK equities could in the longterm benefit, However, UK companies got hit the hardest in Q2 this year and haven’t bounced back as much as other markets because of how the market is made up in terms of energy complex financials.

And it’s really been waiting on positive news regarding a vaccine, which we know came out earlier this week, which is why we’ve seen a huge rally in the UK market. We believe the UK market could benefit from this. The UK market has been the laggard of all stock markets since 2016.

Of course, there are benefits to moving forward, not having the ties to the EU and doing business with the rest of the world. It’s certainly a key theme. But I think most people just want this done and dusted to know what the situation is and get on with things. What markets don’t like is uncertainty.

How has COVID-19 impacted investment opportunities?

I don’t like to use the term ‘COVID winners’ but there are some clear winners with regard to sectors and companies. Many IT companies have actually benefited from 2020 markets. Of course, as I mentioned earlier, there have been losers with real estate, financials and energy being hit the hardest.

Looking at sectors, the least affected would be healthcare companies, IT and utilities such as electricity and gas supply companies. Also consumer staple companies such as those that produce toothpaste or cereal; the type of products that you buy whether you’re in a recession or not. These type of companies tend to be quite resilient in these market pull backs.

When we look at some of the companies or areas we think are exciting opportunities, there are nine innovative themes* we focus on. COVID has brought these investment themes forward by a couple of years. I think these were going on in the background, but it’s forced people to take note.

*slide to accompany this at 23 minutes into the video

Nothing in this article is an inducement or recommendation to invest in any of the sectors mentioned. You should always seek advice from a qualified financial adviser before investing.


Issued by Guinness Asset Management Limited, authorised and regulated by the Financial Conduct Authority.

This report is primarily designed to inform you about Guinness Global Equity Income Fund. Any investment decision should take account of the subjectivity of the comments contained in the report. It is provided for information only and all the information contained in it is believed to be reliable but may be inaccurate or incomplete; any opinions stated are honestly held at the time of writing, but are not guaranteed. The contents of the document should not therefore be relied upon. It should not be taken as a recommendation to make an investment in the Fund or to buy or sell individual securities, nor does it constitute an offer for sale.


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The Fund is a sub-fund of Guinness Asset Management Funds PLC (the “Company”), an open-ended umbrella-type investment company, incorporated in Ireland and authorised and supervised by the Central Bank of Ireland, which operates under EU legislation. The Fund has been approved by the Financial Conduct Authority for sale in the UK. If you are in any doubt about the suitability of investing in this Fund, please consult your investment or other professional adviser.


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David Cooper