AIC fund manager poll

Emerging Markets tipped as best bet for 2021.


Investment company managers have tipped Emerging Markets to outperform in 2021, according to the annual poll conducted by the Association of Investment Companies (AIC). The poll was carried out with AIC member investment company managers between 9 and 30 November 2020.

Despite many developing economies having been hit hard by the pandemic, 24% of managers feel Emerging Markets are most likely to reward investors next year, followed by the UK (19%) and the US (14%).

Managers are bullish on Emerging Markets and the UK over the longer term too. On a five-year view Emerging Markets and Asia Pacific excluding Japan were seen as the most attractive opportunities, each receiving 19% of the votes, with the UK and US tied in second place with 14% of responses each.

Reasons to be cheerful

With vaccines soon to be rolled out across the globe, the threat of COVID-19 receding is deemed the greatest cause for optimism by managers next year, gaining 38% of the votes. However, managers are also optimistic about the possibility of technology driving economic growth, with this and a value-growth rotation each receiving 14% of responses.

Inflation and negative interest rates

Interest rates rising is seen as the biggest threat next year (19%) followed by high equity valuations (14%).

Despite the economic fallout from the pandemic, 90% of managers believe UK interest rates will not turn negative in 2021 and 71% feel it is either ‘unlikely’ or ‘very unlikely’ that we will see a significant increase in inflation.2 However, on a three-year view 77% of managers believe a significant increase in inflation is either likely or very likely.3

Best-performing sectors in 2021

Almost a fifth (19%) of managers believe Healthcare Equipment & Services will be the best-performing equity market sector in 2021. On a five-year view, managers favoured Travel & Leisure companies to outperform, with 19% nominating the sector to recover strongly from a catastrophic 2020.

Where will the FTSE 100 end 2021?

Investment company managers are optimistic about the prospects for global stock markets, with 67% believing they will rise in 2021 and only 10% believing they will fall. Nearly two-fifths of managers (38%) feel the FTSE 100 will close between 6,500 and 7,000 next year. A third (33%) were more optimistic about the UK’s blue-chip index, with 7,500-8,000 (19%) and 7,000-7,500 (14%) the next most popular choices.


In a year where the pandemic impacted everyone’s lives, 62% of managers reported that their investors’ interest in ESG had increased due to COVID-19.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “With a vaccine on the way, investment company managers are optimistic about the threat of COVID diminishing, and over two-thirds of them believe markets are set to rise next year. The prospect of a much longed-for return to normal is influencing managers’ thinking, with healthcare tipped to perform best in 2021 and the travel and leisure sector predicted to be the top sector over five years. Investors’ interest in ESG strategies has been sharpened by the pandemic. Over both the short and long term Emerging Markets are favoured by managers but despite a difficult year and a persistent cloud of Brexit uncertainty, the UK is seen as attractive for the future.

“Of course, it’s interesting to look at managers’ views but the pandemic’s dominance in 2020 demonstrates that no-one can predict what will happen in the future. Investors need to focus on creating a balanced long-term portfolio which meets their needs.”

Manager comments on 2021 and beyond

Andrew Bell, Chief Executive Officer of Witan Investment Trust, said: “The future looks very positive, with revolutions in information technology and medical science transforming lives for the better. Investment in infrastructure will help drive recovery from 2020’s economic shocks. Asian consumption, technology and biotechnology remain key long-term themes. Near-term, banks and the travel and leisure sectors are likely to bounce strongly as investors make a rational analysis of their prospects rather than extrapolating the awful short-term trends from 2020.”

Dean Orrico, Portfolio Manager of Middlefield Canadian Income, said: “While the fight against COVID-19 is far from over, the availability of vaccines, together with improving treatment protocols and therapeutics, are important steps towards a gradual improvement in employment and consumer confidence, thereby contributing to a recovering economy as we head into 2021. A more constructive economic backdrop, we believe, should drive equities higher over the next 12 months, with a significant contribution from more value-oriented sectors including REITs and financials.”

Zehrid Osmani, Portfolio Manager of Martin Currie Global Portfolio Trust, said: “We are constructive on global equities for 2021 and beyond, given our view that interest rates will remain low for prolonged periods of time, with supportive monetary and fiscal policies and the low yields environment pushing investors to consider equities’ earnings yield as more attractive versus bonds. Long-term valuations currently point to European and Asian equities looking attractive relative to US equities.”


Charles Plowden, Manager of the Monks Investment Trust, said: “We look to the future with the same approach which has served us well through this pandemic.  This is a rigorously bottom-up process, focusing on individual companies which are addressing significant growth opportunities with ambition and adaptability. We are living through a time of unprecedented technological advance across multiple industries; this is enabling new competitors to disrupt the established order with better and often cheaper solutions. If the incumbents do not respond radically and rapidly, they are destined to decline. We expect markets to further polarise, as they have in 2020, between the future winners and the rest. Any company’s willingness and ability to respond to current pressing environmental and societal pressures is yet another test of its resilience and even its survivability. Where this leaves overall markets and sectors in the short term is anyone’s guess: I prefer to leave such prognostications to others.”

Steven Tredget, Partner of Oakley Capital, the manager of Oakley Capital Investments, said: “Despite broader economic uncertainty, there are reasons to be positive looking ahead to 2021, especially with the prospect of a vaccine on the horizon. The acceleration of the shift towards digitalisation across the globe will mean those private equity firms with a tech-focused portfolio and ability to source strong assets will continue to be well positioned over the coming months.”


Steve Cook, Portfolio Manager of Sequoia Economic Infrastructure Income Fund (SEQI), said: “There is no denying that 2020 has been a challenging year for us all, with widespread economic uncertainty hitting the markets. Looking ahead to next year, although there are still many unknowns, one thing we can be sure about is an increased focus on ESG. The COVID-19 crisis has accelerated the shift towards sustainability, with businesses across the country calling for a green recovery, and these issues will no doubt be at the top of investors’ priorities. At SEQI, we are looking forward to continuing to implement our ESG policy and playing whatever part we can in enabling the transition to a lower carbon world.”

Simon Barnard, Portfolio Manager of Smithson Investment Trust, said: “Our approach to ESG has not changed. We assess all potential investments for sustainability at the very initial stages of our research process. We also continue to engage with executive management and supervisory boards of our investee companies to promote what we believe to be best practice in the areas of corporate governance and management remuneration. Our investment company focuses on buying, and holding for the long term, shares in high quality listed companies that will compound in value over time. These companies have proven to be extremely resilient during the pandemic and the strong performance of the trust is a testament to this.”

Jamie Ross, Fund Manager of Henderson EuroTrust, said: “One of the less obvious impacts of this crisis will likely be a growing awareness of the environment around us and the realisation that how we treat our environment is inextricably linked to the future prospects for our species. For a number of years, companies have been increasingly aware of this point, and governments, especially across Europe, have been pushing them further in this direction. Investors clearly have their part to play here too and investing in companies that behave in a sustainable way has become an increasing investment focus for us. Within the portfolio, we own a position in Koninklijke DSM, the Dutch-listed food ingredients company, the renewable energy companies Vestas, Enel and RWE (a business transitioning from thermal to renewable generation), the recyclable packaging company SIG and several healthcare companies including diabetes-focused Novo Nordisk and the blood plasma company Grifols. We believe that investing in these kinds of businesses makes financial, as well as moral, sense; simply put, companies with a sustainable approach will, over time, attract an increasingly low cost of capital from investors, and the opposite can be said for those companies that refuse to think about the world outside their narrow commercial focus.”


Alasdair McKinnon, Manager of the Scottish Investment Trust, said: “Gold has been one of the standout assets of the pandemic and we believe that it can thrive in the coming environment. Some view gold as a safe haven, though we see it as a sort of currency – one that cannot be devalued by the colossal monetary and fiscal measures we are seeing now. Many investors have become accustomed to low inflation, but ‘money printing’ is ultimately inflationary and we believe that markets are underestimating the potential for a prolonged bout of above-average inflation. Gold miners ought to prosper in those conditions.”

Value-growth rotation

Richard Staveley, Fund Manager of Gresham House Strategic, said: “The rejection of UK equities and value shares in favour of US equities and growth shares which has dominated investor behaviour in 2020 is likely to recede in 2021. Disparity in popularity will remain, but vaccine developments should enable an ongoing reduction in extreme market positioning despite a likely resurgence in Brexit-related headlines which are probably already priced in.”

UK becoming ‘investible’ again

Simon Gergel, Portfolio Manager of the Merchants Trust, said: “In 2021, the UK will have exited the EU. The end of uncertainty is likely to lead to the UK becoming ‘investible’ again after 4.5 years in the wilderness. Like we saw after the promising Pfizer COVID vaccine trial results, the end of uncertainty over Brexit is likely to lead to fundamental reassessment of UK equities, which are some of the cheapest amongst the major world markets. Within the market, value shares and domestic cyclicals look particularly interesting.”

Ken Wotton, Fund Manager of Strategic Equity Capital, said: “The outlook for UK equities, and smaller companies in particular, is strong for 2021 and beyond as receding risks from COVID-19 and reduced uncertainty around the impact of Brexit drive increasing asset allocations to this area. Sectors most impacted by COVID-19 during 2020 should see a significant recovery in activity and improving sentiment. However, many uncertainties remain and some permanent damage has been done to certain parts of the economy. Sentiment is likely to be volatile in the near term which will create challenges but also attractive long-term investment opportunities among smaller companies.”

Jean Roche, Co-Manager of Schroder UK Mid Cap Fund, said: “The most notable development as 2020 draws to a close is a spike in incoming M&A activity in the UK, indicating that UK assets have become too inexpensive to be ignored. We can expect this to continue as the Brexit clouds clear and markets gain confidence in the distribution of a COVID vaccine. What will also be interesting to see is whether, long term, behaviour around distribution of earnings as dividends moderates. We could see management teams seeking to increase investment to grow companies, a behaviour which, well executed, will drive sustainable growth and earnings, as well as more resilient dividend streams.”

Alex Wright, Portfolio Manager of Fidelity Special Values, said: “From a macro and geopolitical perspective, many uncertainties remain from the outcome of Brexit negotiations to the timing of the withdrawal of support measures and likely future tax increases. While a no-deal Brexit scenario would clearly be a negative outcome, the robustness of UK supply chains through the COVID-19 crisis does give us some comfort that companies are better prepared than previously thought. Deal or no deal, the end of negotiations should lift some of the uncertainty that has plagued UK equities for the past five years.”

Roland Arnold, Manager of BlackRock Smaller Companies Trust, said: “We should not forget that the UK market needs more than just COVID-19 clarity. The US election result has provided hope of a more balanced global political environment, and with the US risk passing, attention is now shifting to Brexit. Our view remains that whichever direction Brexit takes is of less importance to the companies in our portfolio over the mid to long term. They have had years to implement Brexit contingency plans, whilst the recent virus disruption shows how quickly companies can adapt to supply interruptions. What the Brexit decision will bring is clarity. It will finally allow overseas investors to assess the risk of UK equity investments with the knowledge of what the future trading relationship with our biggest partner looks like, removing what has been a significant impediment to investing in UK assets.”

Job Curtis, Fund Manager of the City of London Investment Trust, said: “The combination of monetary and fiscal stimulus and the roll out of effective vaccines are positive for global economic growth. After underperformance compared with the average of world stock markets, the UK has the capacity to surprise to the upside. In general, stocks with above average dividend yield with growth should be well supported given continuing low interest rates.”


Robin Parbrook, Co-Portfolio Manager of the Schroder Asian Total Return Investment Company, said: “Whilst we are personally feeling a little more upbeat about life, when it comes to potential returns from Asia’s stock markets we are less optimistic. With Asian indices up 50-60% from March lows valuations are now high and are clearly anticipating a sharp turnaround in corporate earnings. Tell-tale warning signs are also flashing amber whether it is bubble like valuations in the electric vehicle, biotech and internet sectors, the heavy issuance of IPOs of increasingly dubious quality or high levels of retail investor participation. All this leaves your fund managers cautious. We still believe we can make money in 2021 but investors must temper their expectations and tread carefully.”

Chetan Sehgal, Lead Portfolio Manager of Templeton Emerging Markets Investment Trust, said: “Over the longer term, COVID-19 should be a bump in the road for China’s long-term growth, given it has been rebounding quickly from it. The healthcare sector is also an area we’re watching closely. We’ve seen the Chinese government cultivate an environment where healthcare innovation is rewarded. This will likely improve the prospect of affordable healthcare in China. We see immense opportunities for China going forward.”

Emerging Markets

Ramesh Mantri, Adviser to the Ashoka India Equity Investment Trust, said: “Indian equity markets have continued their upward trend through Q3, and this should instil confidence for investors looking to access the region into 2021. India remains a powerhouse for IT services, and this sector continues to gain market share as businesses around the world accelerate efforts towards cloud migration, digital adoption, and modernization of technology infrastructure.”

Carlos von Hardenberg, Manager of the Mobius Investment Trust, said: “Over the coming years, we expect further significant positive economic development in particularly Asia and Latin America, as well as Africa. The past year has led to an acceleration of healthcare spending and investments, triggered another leg forward towards distant learning and related technologies, and underlined the importance of ecommerce as the new bricks and mortar. Asia and many emerging markets have made impressive progress in the development of proprietary technology, but also towards a more sustainable and environmental and socially acceptable industry overall. We believe that a rotation back into Emerging Markets will lead to a normalization of the large discount Emerging Markets are trading at today, and solid corporate earnings will be accompanied by improved macroeconomic tailwinds.”

Emily Fletcher, Co-Manager of BlackRock Frontiers, said: “Without the ability to extend as much support to their citizens as Western economies, we expect developing economies to emerge from the crisis without the excessive debt burden of many Western economies and at the same time displaying higher growth levels. Although hit hard by the global lock downs, frontier economies have displayed a remarkable resilience, helped by the flexibility of their labour forces.”


Nicholas Price, Portfolio Manager of Fidelity Japan Trust, said: “A number of themes present themselves. Certainly, clean energy and environmental efficiency are areas where Japan has some very competitive companies that can supply solutions to the regulatory and productivity needs of customers globally. COVID-19 has also accelerated trends in ecommerce and digital transformation needs of companies. As profits recover, companies will prioritise those areas. More ethical consumption is also likely to be important in business to consumer facing companies.”

Alternative opportunities

Nalaka De Silva, Manager of Aberdeen Diversified Income and Growth Trust, said: “Looking out over 2021 and beyond we see the best return prospects in a number of alternative asset classes, which we look to access in liquid and illiquid formats. This includes infrastructure assets that have attractive and reliable yields with inflation linkage. It also includes private credit and asset-backed securities which are offering significantly higher spreads than corporate bonds for similar levels of risk. Finally, there are a range of more niche asset classes such as healthcare royalties and litigation finance that we expect to deliver good returns over the next five years.”

Reasons for caution

Craig Baker, Global Chief Investment Officer of Willis Towers Watson and Chair of the Alliance Trust Investment Committee, said: “Financial markets always face uncertainty but as we enter 2021 there is more reason than ever to  be cautious and avoid betting on particular countries, sectors or investment styles. We are in the midst of a global pandemic and, despite positive news on the vaccine front, there is still a lot that could go wrong, not least the policy responses which could vary widely between governments. Any rise in inflation expectations or significant tax changes could dramatically affect the style or sectors driving the market. For that reason, we think it’s vital to have a diversified portfolio focused on stock selection rather than macro factors as its key driver.”

Sam Morse, Portfolio Manager of Fidelity European Trust, said: “The one reliable prediction is that we should expect the unexpected. When asked this question in 2019, how many portfolio managers predicted a global pandemic? Having said that, the most likely ‘surprise’ is that earnings don’t recover to the extent that analysts are predicting, leading to disappointing stock performance. We are also keeping an eye on the US, where we are wary of slowing growth. If the GOP retain the Senate, then we could see political gridlock and President-elect Biden may be unable to pass the stimulus package that the market is expecting.”

James Robson, Chief Investment Officer at RM Funds, the investment manager of RM Secured Direct Lending, said: “Near-term optimism for markets should see new highs for European markets as those under-invested move into growth assets over the next 12 months. However, risks are building. To my mind near-term optimism is dampened by a medium-term negative outlook as we really are at the tail end of the economic cycle. RM Funds have navigated the crisis well – in fact the defensive nature of the products the funds manage are well suited for investors who have a cautious outlook.”


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Notes to editors

  1. The poll was conducted with AIC member investment company managers (ex. VCTs) between 9 and 30 November on an anonymous basis. Responses represent 14% of total member assets excluding VCTs as at 31 October 2020.
  2. 57% of respondents believed a significant rise in inflation in the next 12 months was unlikely, 14% believed it was very unlikely.
  3. 48% of respondents believed a significant rise in inflation in the next three years was likely, 29% believed it was very likely.
  4. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 358 members and the industry has total assets of approximately £209 billion.
  5. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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