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Investment strategy
February 25, 2021
3 mins

Equities and sterling supported by vaccine progress and ongoing policy support

February 25, 2021
3 mins
Jeffrey Sacks
Head - EMEA Investment Strategy
Busy streets of London
SUMMARY

The combination of vaccination rollout and economic stimulus point to ongoing recovery in Europe and the UK. We think regional equities and the British pound represent opportunities.


  • UK equities overweight. UK equities offer good valuations and good dividend yields. The UK’s equities and currency have started the year well following the EU trade deal and vaccine progress, and are likely to have further to go. 
  • Sterling well supported. Even with significant post-Brexit challenges, and no services deal with the EU yet, Brexit is no longer an overhang holding back investment in the UK. There is also better domestic political stability, and increasingly less likelihood of lower rates. Valuation and inflows support our advice to keep accumulating into weakness.
  • European equities overweight. The poor vaccine rollout is expected to improve in 2Q21. Italy’s new PM Draghi, the former European Central Bank (ECB) chairman, is positive for Italy and also more broadly for all the periphery countries and for European solidarity. The ECB continues to support the bloc’s economy and bond prices. The Biden presidency should be a net positive factor for Europe. Alternative energy is a powerful long-term growth driver, supported by increasingly aggressive government initiatives.
  • Both UK and European equities offer particularly good exposure to the areas we favour globally: “COVID cyclicals,” value, mid-caps, high dividend yielders and dividend growers. 
  • High yield corporate bonds offer selective opportunities, even after the 27% price rally from March 2020’s lows. In an environment of “financial repression,” the average yields of 3.0% look attractive versus cash and other areas of the fixed income universe.
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