Hello and welcome to The Download. I’m your host, Dave Richardson. And before we go into our traditional (S)Tuesdays, I want to wish every one who listens to the podcast a very happy New Year. All the best to you and your loved ones in 2021. We’re hoping on many fronts for 2021 to be a better year than 2020. Although as we focus on this podcast on investing, investing in 2020 was a surprisingly good year in terms of most areas of the market. But I’m sure, like you we’re looking forward to 2021 and what might take place there. So Stu Kedwell, Co-Head of North American Equities at RBC Global Asset Management, happy New Year to you and welcome back for the first (S)Tuesdays of 2021.
Well, thanks very much, Dave, and happy New Year to you and to everyone else who’s listening.
Great. So Stu, this is one of those times, it’s the turning of the calendar. It’s sort of a point of demarcation for people to think about what’s coming as opposed to what’s just happened. And when you look forward to 2021, what are some of the things that you’re thinking about from an investment perspective that investors listening to this podcast should be thinking about as well?
Well, that’s an interesting starting point. First and foremost, when I start the New Year, I always revisit my notes from the year before. And it’s a good reminder that more things can happen than you think might happen; anything in the 2020 playbook, when we sat here last January, that actually turned out. So we take that with a grain of salt. As investors, we’re always focused on the range of alternatives that might be in front of us. What they could mean for earnings and valuations. A good thing to remember from last year was that when the stock market sold off in March, valuations became quite attractive. The things that people were concerned around — the liquidity and keeping the economy going — were squarely in the focus of the central banks and governments around the world. And they responded with vigour and then, as a result, the markets followed them. As we sit here today, I think on the one hand that central banks remain very accommodative and that governments are still focused on how to stimulate the economy. So those are two positives. On the other side, markets have run a long way and valuation, while not at extremes, is elevated and is really more attractive now, relative to fixed income, than on an absolute basis. When we look out in the near term, it might be a little bit more bumpy. There is always the possibility as we get these Covid headlines that it creates some angst in the marketplace. But by and large, we’re sticking to the same game plan, which is to look forward, look towards the reopening of the economies, look to whether or not it’s May, June, July, I’m not sure, when inoculation starts to hit critical mass and try and think about what the economy could look like as it reopens. Those are the things that we’re thinking about as investors. So it’s still very much on the mindset of saying near-term volatility creates opportunity against what should be a better second half of 2021 for the economy and what should be a better 2022 as well. So that’s the game plan. It’s been relatively consistent and we’re sticking with it as we get into this New Year.
Yes. As we come in the New Year, and for anyone who goes back and listens to any of the previous podcasts that we’ve taped throughout 2020 and even going back into 2019 — you can go into the various podcast services and you can download all these previous episodes — that whole idea, particularly coming into a new year: as you’re assessing your portfolio, you’re assessing your investment plan, thinking about that range of outcomes, 2020 was a year that taught us you absolutely could not be stuck with one fixed idea of how something could work out. You needed to have that broad range of possibilities to navigate through and really benefit from an investment perspective from what was happening. As we start to move through Covid — and as you mentioned, the second half of the year might look a little bit different from the first half of the year — anything else you see happening with businesses from a strategic standpoint or as they start to look forward to the post Covid world?
It’s a great point, Dave, because as you know, we have discussions with management ongoing and we’ve really noticed a change in the last month or so in those discussions. Tt’s gone from: How do we get through this? to What do we do on the other side? So management teams are thinking much more strategically about their business. They’re encouraging all their direct reports to bring ideas about how do we grow, how do we maximize as the economy recovers. That’s a very different tune that’s coming from these management teams in the last six to eight weeks than it would have been, say, at the end of the summer or early into the fall. You know, I think that could lead to more mergers and acquisitions. It will lead to different investments by different companies as they try and use the resources that they’ve garnered inside their business. In the last six months, people have been focused on efficiency that’s preserved some cash, which allows you to do things. There’s still a fair amount of liquidity in the system. The management teams are very focused on building shareholder value and really trying to come out of this with more than what they went into with. So I think that also is a positive when it comes to thinking through 2021.
Wow, that is really interesting. I guess, kicking off for the New Year and where I started with today’s podcast, almost a sign of optimism which I guess every New Year starts with. But those words and that subtle shift in what’s going on at a senior level in the firms you’re talking to, that does suggest that there is a little bit of optimism in the air for getting through this terrible global pandemic and moving back to what we like to think about from both an investment and business leadership perspective.
One hundred percent. No one’s trying to be cavalier around what faces us in the very near term, because those headlines are still pretty sanguine. But markets are forward looking. Management teams now feel more comfortable being forward looking. And that has been a shift in the last little while.
Well, that’s fantastic, Stu. Thank you again for your time today. Always great observations. I look forward to connecting with you many times through 2021 to get your insights on the investment landscape. Thanks again.
OK, thank you, Dave.