Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

A week, as they say, is a long time. In politics. In investment too. It’s hard to believe that we are only seven days into 2021, given what the markets have already had to factor in.

The fallout from Brexit, soaring Covid infections, the Georgia Senate run-offs and the disgraceful scenes in Washington will all have an impact on our investments. Weighing up the positive and negative influences - and there are both - is our job as investors. No-one said it would be easy.

So, it’s a good week to publish our latest quarterly Investment Outlook. The idea behind this guide to the main asset classes and regions is to provide some context for your investment decisions. We’re into the Outlook’s eighth year now, and the growing audience and ever longer list of questions suggest there’s no shortage of interest. More now than ever, I suspect.

Download the Investment Outlook report here

A year ago, we entered 2020 with cautious optimism. What hit us in February was a salutary reminder that we should never take anything for granted in investment. What followed in the rest of the year told us that we can worry too much too. Who would have predicted in March that many markets would end the year higher than they started?

I learned a lot last year. You always do when the cards are thrown in the air. And I discuss some of the key lessons from 2020 in the latest Outlook and in conversation with Emma-Lou Montgomery and Ed Monk in the webcast and podcast that, as usual, accompany the report.

I also review last year’s fund picks, which did about as well as could be expected in a challenging period. I’d have preferred a heavier weighting to the stellar US market recovery, but if someone had told me in the spring that my picks would have regained their losses by the end of the year I’d have taken it.

This year’s picks are focused on three key themes: sustainability, income and the passing of the shadow of Brexit. The Outlook explains my thinking behind the choice of these five funds:

In some ways, 2021 is more of a blank canvas than last year was. Yes, we were knocked off course by the great ‘unknown unknown’ of the pandemic. But there were at least a couple of ‘known unknowns’ at the beginning of 2020 too. We knew about the upcoming Presidential election in the US. And we knew that Brexit would be resolved one way or another.

This year there is less on the agenda and the need to be prepared for whatever Mr Market throws our way is even greater. One thing we do know is coming, however, is the COP26 climate summit in November. Environmental considerations will be front and centre. So, too, as the pandemic grinds on, and we hope passes, will be the social issues highlighted by Covid. ESG, or sustainability, will be a market driver as never before.

Against this backdrop, what are the Outlook’s key takeaways? Shares look like being the asset class of choice this year, as supportive policy and economic recovery combine to justify last year’s market bounce. Commodities will be another beneficiary of the return to normal.

Less interesting, I suspect, will be bonds as interest rates start to rise again, although in a yield-hungry world there are some fixed income investments, such as Chinese government bonds, that could come into focus. Commercial property, too, is a source of income despite the challenges facing both retail and offices.

In terms of regions, my big bet is that the pariah UK market will come back into favour. Shares here are cheap, the economy is geared to a post-pandemic recovery, and we can finally stop talking about Brexit and work out how to use those new freedoms.

The US is expensive but a Democratic sweep, albeit a small one, offers the prospect of a busy two years ahead of the mid-term elections at the end of 2022. Joe Biden won’t want to waste the next 24 months.

I think 2021 could also be the year when Asia and emerging markets regain their mojo. Last year was good for Chinese stocks, but a falling dollar, global economic recovery and the benefits of being first in and first out of the pandemic augur well for this year too.

So, there’s plenty to keep an eye on this year. I hope it also turns out to be a more normal year for all of us - spending more time with friends and family in due course, perhaps enjoying a holiday too. Here’s to a happier new year.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics Covered:

Active investing; Global; UK; North America; Volatility

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