Takeaways From The Barron's 2021 Investing Roundtable: 'Make Sure You Have Some Dry Powder'

Barron’s hosted its annual Roundtable event on Monday in which Wall Street experts discuss their outlook for the market and the economy in the year ahead. Here’s a rundown of what the experts are watching in 2021.

Todd Ahlsten, chief investment officer and lead portfolio manager of the Parnassus Core Equity Fund, said he is expecting more upside for stock prices — and more volatility as well.

“We’re constructive on the markets, but we expect there to be several deep corrections along the way,” he said.

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Scott Black, founder and president of Delphi Management, said the Fed will remain accommodative throughout 2021 and interest rates are going to stay low, which bodes well for the U.S. stock market.

Black said each of the 10 largest S&P 500 stocks other than Tesla, Inc. TSLA are also on track for record earnings in 2021.

Investors should look for some of 2020s top performers to come back to earth in 2021, he said.

“I would avoid what I call stay-at-home stocks.” 

Politics In 2021: Abby Joseph Cohen, advisory director and senior investment strategist at Goldman Sachs, said politics will play an important role in the markets in 2021.

She called the recent events at the Capitol “a disgrace” and said investors should pay attention to whether Republicans that supported the recent efforts to challenge the election results “will be cooperative with the incoming administration.”

Cohen pointed out that while many investors are concerned about stock market valuations, about one-third of global bond yields are negative, suggesting fixed income valuations are extremely stretched.

Sonal Desai, chief investment officer for the Franklin Templeton Fixed Income Group, said the possibility of the imposition of significant lockdowns in response to waves of COVID-19 outbreaks are a serious risk to the market in the near-term.

She also said market valuations are not entirely factoring in the potential negative impact of corporate tax hikes in the second half of the year.

“I do think that valuations are pretty stretched right now.”

Asia is relatively well-positioned in 2021 because the region generally handled the pandemic relatively well compared to other parts of the world, Desai said. 

Henry Ellenbogen, portfolio chief at the T. Rowe Price New Horizons Fund, said the pandemic permanently impacted the way we participate in the economy. While many businesses may go back to their pre-pandemic approaches, the ability to work remotely and access health care, education and other services online has created a new form of value, he said.

“Investors need to keep in mind that against a backdrop of volatility you want to own companies that are going to be sustainable and durable on the other side,” he said.

Frothy Market: Mario Gabelli, chairman and CEO of Gamco Investors, brought tulips to the roundtable for the first time since 2000 to highlight the froth in financial markets.

He said the fact that one company can sell for a market cap of $50 billion and another with a nearly identical business and growth outlook can trade at $6 billion is an indication of the overexuberance in the market these days.

Bill Priest, CEO and co-CIO at Epoch Investment Partners, said investors should expect post-pandemic consumers to demonstrate the same passion for living and experiencing that was reflected in the 1920s.

In the near-term, he said the biggest risk to the market is missteps in the implementation and effectiveness of the coronavirus vaccines given that there is a “tremendous amount of success” built into expectations for the vaccines.

Priest said he sees tremendous investing opportunities in technology, science and education.

Meryl Witmer, general partner at Eagle Capital, said she is anticipating the corporate tax rate will rise in the second half of 2021 — and investors aren’t appreciating the negative impact that policy change could have.

“I think that will be a 10% weight on the markets just on itself,” she said. She said her biggest piece of advice is for investors to maintain the flexibility to capitalize on potential market volatility.

“Make sure you have some dry powder so you can buy when others are fearful.”

Overvalued IPOs: Rupal Bhansali, chief investment officer and portfolio manager of Ariel's international and global equity strategies, said sky-high IPO valuations in 2020 will likely lead to some major disappointment.

She said research shows decisively that IPOs tend to be overvalued, and “90% of IPOs tend to trade below their IPO price six months after listing.”

At the same time, Bhansali said SPACs are essentially blank checks, which are “the worst kind of checks to write.”

James Anderson, partner and head of global equities at Baillie Gifford, said genomics is “absolutely critical for stock market investors.”

The scientific community is beginning to get evidence that sequencing what’s going on in the genes of patients suffering from mental conditions and diseases is helping with treatment and understanding, he said.

“It will become more and more central in the next five to 10 years.”