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Investment strategy
December 8, 2020
4 mins

Finding growth for portfolios in the post-COVID world

December 8, 2020
4 mins
David Bailin
Chief Investment Officer
Steven Wieting
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
Electric car show room
SUMMARY

Markets rallied hard in November, with rotation into investments hit hard by the pandemic. We believe strong returns for certain markets can continue into 2021 as the world economy normalizes.


A sharp rally in November pushed the Russell 2000 measure of US small and mid-cap shares up 18.3%. The positive reaction to the rollout of effective COVID vaccines over the coming year has generated a rotation in market strength to the victims of the pandemic. The world economy is highly likely to normalize over the second half 2021, and we still see strong returns for segments of global markets in the year ahead (see The New Economic Cycle: Investing for a Post COVID World).

Some investors wonder if the rotation has already gone too far. Our measure of the most impacted COVID equities is still down 20% in 2020-to-date, lagging the strongest COVID beneficiaries by 70%.  Is it all too much? A lasting period of easy monetary policy and a merely incipient economic recovery is not a likely time for overall markets to retrench significantly.  There will of course be setbacks. Few months are likely to see as powerful returns as November 2020.

Our 2021 theme “Exploiting Mean Reversion” is a reference to asset prices, not a fixed period of time. If investors show unmitigated confidence in post-COVID normalization, then opportunities in “COVID Cyclicals[1]” may be closed in mere months. If there are significant doubts and setbacks, the opportunity will last longer.

The Future is Electrifying. There are technologies and industry sectors that show strong growth potential and were never deeply connected to the COVID shock. With the impending entry of Tesla into the S&P 500 on December 21, we examine how the broader trend of electric vehicle adoption will remake the auto industry and alter the landscape for decades to come, much as e-commerce has fundamentally changed retailing.

In 2014, Norway had an EV sales fraction that looks very similar to the level that currently prevails in the European Union. However, with the help of local incentives, the EV market share in Norway has quadrupled, with a full elimination of Internal Combustion Engine (ICE) vehicle sales likely within only a few years. In 2021, we expect market forces to replace much of the work that governments like Norway have done with regulation.

While a number of the European automakers have sizeable shares of the EV market, it is Tesla and the new Chinese entrants that have seen the fastest sales growth more recently as the transition to EVs cannibalizes traditional automakers’ larger ICE sales.

If you are a Citi Private Bank client you can check the value of your portfolio by reviewing your monthly statements or, if you use Citi Private Bank In View, by  navigating to the Account Overview page via Portfolio → Overview. If you have any queries please contact your usual Citi Private Bank representative.
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