Looking past the Pandemic to 2021 and beyond - December 4th 2020 - Appian ...
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Looking past the Pandemic to 2021 and beyond
December 4th 2020
The V-Shaped Recovery
❑ 2020 was the deepest recession since the Great Depression ❑ The recovery is equally as impressive
Source: Morgan Stanley November 2020
2
This was not a Financial Crisis
➢ Retail sales in the US are already back to all time highs.
➢ Took 2 years to recover post the Global Financial Crisis.
Source: Morgan Stanley November 2020
3
2020 was about Fiscal Support
Source: Morgan Stanley November 2020
4
2021 is Looking Brighter
❑ Leading indicators are in good shape going in ❑ The Bond Market agrees: Steepest Yield Curve in 2 years
to 2021
Source: Refinitiv Datastream 1/12/2020
5
Waves will mean something different in 2021
6
H2 2021 may feel like an Economic Boom
➢ Fiscal spending continuation
Plus
➢ Renewed consumer spending
Plus
➢ An inventory rebuild
= ECONOMIC BOOM
7
Will the consumer keep spending in 2021?
❑ A Spending Boom: US Savings Rate is 14% and falling
Source: thejournal.ie 5/10/2020
Source: Refinitiv Datastream 1/12/2020
8
Higher debt levels loom over Markets
❑ Headline numbers are scary ❑ But Low Interest Rates make a difference
➢ Short-term interest rates won’t rise any time soon.
9
Central Banks want Inflation
➢ We just don’t know how much
“Many find it counterintuitive
that the Fed would want to
push up inflation,” “However,
inflation that is persistently
too low can pose serious risks
to the economy.”
Jay Powell, August 27th 2020
10The Big Difference from the GFC is Who Pays
Paying for the GFC Paying for the Pandemic
11Big shocks can change Markets for decades
• Global Financial Crisis • Post Pandemic
▪ Austerity • Austerity is Dead
▪ Money Supply didn’t reach main • Focus is on getting money to main street
street
▪ Asset bubbles favoured Wall • Different assets will work for the next
Street over the main street decade
▪ Low Inflation • Inflation is being encouraged
▪ US Dominance • US Dominance is under threat
12The Battle within the Market
Deflationary Shock Versus Inflationary Response
13Signs of Change: Long Term Inflation Expectations Moving Up
➢ Central Banks printing and Government spending will do that
Source: Refinitiv Datastream 1/12/2020
14Signs of Change: Dollar Weakening
▪ Initial run into US Dollar in March has been followed by a 10% decline
Source: Refinitiv Datastream 1/12/2020
➢ A Weaker Dollar is a Positive for Global Growth
15Signs of Change: Copper Prices are Accelerating
➢ Doesn’t look like Dr. Copper thinks we are moving in to economic stagnation
Source: Refinitiv Datastream 1/12/2020
16Wage Growth will be the challenge
• Wage growth needs to be 4% in nominal term to boost real wages - Unemployment needs to
get below 3.5%
Source: Refinitiv Datastream 1/12/2020
• Can reflation take us there? Deflation or the disinflation of the last decade won’t
17The Bull Markets of the last decade may be over:
16000
14000
Deflation Assets:
12000
❑ Government Bonds
10000 ❑ US Investment Grade
❑ US High Yield
❑
8000
S+P 500
6000 ❑ US Growth Stocks
❑ US Consumer Discretionary
4000 Stocks
2000
Inflation Assets:
0
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❑ Commodities
❑ Real Estate
Appian Inflationary Basket Appian Disinflationary Basket ❑ TIPS
❑ Equities in World ex US
Source: Refinitiv Datastream 1/12/2020 ❑ US Banks
❑ Value
New Ones will Emerge ❑ Cash
18Could this unravel the biggest Bubble of all: Passive Management?
➢ Passive has meant
buying more Fixed
Income, more
Growth Equities
and more US
exposure.
➢ The remaining
active managers
are free to seize
Source: Moneycube 1/12/2020
the opportunities
19Labels create straitjackets
• Cautious Funds
• Moderate Growth Funds
• Balanced Funds
• 60:40 Funds
20COVID likely to mark bottom in Yields after 40 year Bull Market:
Source: Refinitiv Datastream 1/12/2020
21Appian Multi-Asset Funds
Dynamic Asset Allocation
Appian Impact
Assets Appian Multi Asset Ranges
Fund
Equities 48% 49% 30-60%
Bonds 4% 4% 0-30%
Cash/Cash Equivalents 19% 22% 10-30%
Property 5% 5% 0-20%
Alternatives 10-30%
Forestry 8% 8%
Infrastructure 8% 12%
Commodities 4% 0%
Venture Capital 4% 0%
*As of November 3rd 2020
22The argument for Equities versus Bonds is strong
Source: Societe Generale November 2020
23But not all Equities are equal
• Quality Stocks, Growth
Stocks and Momentum
Stocks at valuation
highs.
• In a polarised Equity
Market, there is no
middle ground.
• Value Stocks at their
cheapest since the TMT
Bubble
24The Index Managers are in a straitjacket
➢ Themes such as WFH, COVID, Momentum, Low Volatility, Bond proxies and ESG all have led to buying
more technology stocks.
25Removal of fear set to drive Equity rotation
We have seen
a rush into
Equities that
look like
Bonds and
away from
Equities that
look like
EQUITIES
Source: Societe Generale, 11/11/2020
26Out-Performance of Small Caps will continue as fear subsides:
27Beginning of Multi Year Trend?
MSCI Growth Versus MSCI Value since 2000
Plenty of opportunity left for Switch back into Value
Source: Refinitiv Datastream 1/12/2020
28Conclusion: Appian is an Active Manager
Appian Multi Asset Fund:
➢ Only Bond exposure is through European Inflation Linked Bonds
➢ Alternatives providing yields and inflation protection
➢ Value focused Equities
Appian Impact Fund:
➢ Following Appian’s Asset Allocation
➢ Impact themes of Water and Food Sustainability, Resource Efficiency, the Circular Economy and Social
Improvement
➢ Equities are Value focused
Appian Dividend Growth Fund:
➢ Three structural bull markets in Value Equities in the last 50 years. All three occurred when valuation dispersion
reached extremes. We are at that point.
➢ Our disciplined Dividend driven style of Investing will enable us grasp this opportunity.
Appian Global Small Companies Fund:
➢ Positioned for the next bull market in Small Cap equities.
➢ Small Cap Value Equities lead in economic recoveries – This time will be no different
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Patrick.lawless@appianasset.ie
+353 (1) 6623001Disclaimer
Warning
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• Past performance is not a reliable guide to future performance
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Please note that any target return noted in this material is not guaranteed.
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Investment Alternative Investment Funds and are sub-funds of the Appian Unit Trust.
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discretion of the directors and minimum investment term prior to any redemption request being considered is two years from investment.
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be reliable. While all reasonable care has been given to the preparation of the information, no warranties or representation, express or implied are given or liability accepted by Appian
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