This year is widely billed as one of reopening and recovery for financial markets around the world, but one shouldn't rely solely on a turnaround of COVID-loser stocks.

We believe the rotation into cyclical and Value stocks heralded by COVID will run into the end of the first-quarter of 2021. The pandemic sparked a rotation that delivered a big boost to COVID-19 losers including travel and retail REITs.

We don’t believe this is the end of Quality as a style, but that investors will again turn to companies that have sustainable earnings growth, and that those will benefit from the structural shifts we’re experiencing, particularly over the medium-term.

Our outlook of cautious optimism is tempered by continuing uncertainty, both offshore and locally.

Positive domestic signposts include:

• The effect of Budget stimulus
• Higher than expected recent GDP numbers
• Improving freedom of movement as locked-down states, such as Victoria, reopen
• Better than expected employment figures.

And globally, we’re buoyed by the ongoing strength of equity markets. Many developed markets sit at record highs on the back of COVID vaccine rollouts in some countries. Successful vaccine trials in others have seen high efficacy rates and bolstered hopes of a recovery.

“Monitoring for signs of stress”

But the expiry of JobKeeper payments in Australia next month and the winding back of temporary mortgage deferrals loom. So, we continue to monitor for signs of stress in Australia.

But we don’t invest with a six-month outlook, taking a forward view of at least three years, in targeting companies with long-term potential to deliver compound returns, and which are underappreciated by the market.

We can’t rule out double-dip recessions in some of the worst-affected countries. This is particularly in the northern hemisphere, where renewed lockdowns in some regions mean the pace of the recovery is fading.

As mentioned above: we’re not overly concerned, as we don’t invest for the short-term. And even if there was another indiscriminate sell-off, it would present another opportunity to buy those long-term compounding companies at attractive prices.

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