While markets have recovered from the sharp sell-off following the spread of the Covid-19 last year, the economic damage wrought by the coronavirus is likely to feature heavily in investors’ minds during 2021. 
As such, Trustnet asked several market experts about where they will be investing this year and, more specifically, which areas they will be avoiding.
One area that all the commentators Trustnet spoke with were bearish on was government bonds.
Ben Yearsley, a self-proclaimed contrarian investor and co-founder of Fairview Investing, said he would’ve made the same call about bonds at the start of 2020 and been proven wrong.
“They performed heroically during the early stages of the pandemic,” he said, “but I just can’t see any value in them.”
“I’ll caveat that [however] with ‘unless the vaccines don’t work’.”
Peter Toogood (pictured), chief investment officer at The Adviser Centre, said he had also struggled to build a positive case for fixed income generally in 2021.
He said: “For long, we have been constructive on fixed income but today, it is difficult build a positive case given the very low levels of nominal yields and tight credit spreads, which effectively imply economic stability in perpetuity.
“Indeed, there is very little fat on the bone to compensate for a higher default rate, nor for a higher inflation rate, which – finally – is a real possibility as supply issues force up prices and companies attempt to claw back the revenue misses of 2020,” explained Toogood.
“Bonds have been fruitful portfolio allocations for years, but the balance of probabilities suggests that investors may have a less enjoyable journey in the coming months.”
Juliet Schooling Latter (pictured), FundCalibre’s research director, said it wasn’t only bonds that she had a negative outlook for, but cash as well.
Both government bonds and cash could be hurt by “any hint of inflation”, she said, expecting governments to keep interest rates lower for longer to “inflate some of the debt away”. 
Not everybody was bearish about bonds, however.
John Husselbee, head of multi-asset at Liontrust Asset Management, said although he has been broadly bearish on bonds for several years he believes they still have a place in portfolios.
“We believe zero weighting asset classes goes against the fundamentals of diversification,” he said. “While it might be uncomfortable to hold a falling asset, something else is likely to be rising at the same time and it is the overall blend that helps produce a smoother performance ride over the long term.”
Looking to the year ahead, The Adviser Centre’s Toogood said that after a 2020 filled with unforeseen events there’s commentators will feel “especially nervous about putting pen to paper”.
Nevertheless, Toogood said markets are currently facing two “known unknowns”: firstly, the full economic and social impacts of the Covid-19 pandemic.; and, secondly, Brexit and whatever form it takes.
“Accepting that these are ‘known unknowns’, and big ones at that, one approach is to return to the basics of valuation,” Toogood said.
Although not the best ‘timing tool’, Toogood said valuation still has merit on a medium-to-long-term view.
“With that in mind, we can assert that US equities – at the broad index levels – are egregiously priced and, critically, have disconnected from the path of earnings,” he said. “Indeed, on most metrics, US equities are in over-valued territory.”
US equities – and technology-growth stocks, especially – rallied throughout 2020 reaching pre-coronavirus levels within weeks of the March sell-off.
They ultimately proved to be extremely popular assets with investors, said Toogood.
“Calling time on US equities is not for the faint-hearted, but the current circumstances would certainly suggest easing back on portfolio exposures, particularly where you have the opportunity to lock in profits,” he said.
Fairview Consulting’s Yearsley also said that he won’t be allocating more to US equities either this year due to valuations appearing “stretched”.
A bearish view on US equities may appear counterintuitive considering they continued its years-long rally in 2020, but the vaccine news at the end of the year and the rotation into value showed that even growthy US stocks “are vulnerable to market rotation wobbles”, FundCalibre’s Schooling Latter said.
“So, we are not going to be adding to these – just holding the weighting steady,” she added.
Meanwhile, Liontrust’s Husselbee (pictured) expects a Joe Biden administration to have a positive impact on markets, but he remains cautious.
“We still have concerns about narrow market leadership and believe tech companies could face further corrections, even without crushing antitrust regulation,” the Liontrust manager said. “We continue to believe it takes a major leap of faith to buy into tech stocks at current prices, trading on multiples built on several years of future earnings. 
He continued: “To be clear, given the current path of many tech companies, it is hard to argue against them achieving these earnings, particularly if they cut back on research and development – but the key thing to understand is that a huge amount can happen in three or five years.
“That means investors are basically blind buying these stocks and if we continue to see market leadership begin to shift to a broader base, there could be further selloffs of the kind seen in September.”
A third area some of our commentators were cautious on was the UK equities, although Fairview’s Yearsley (pictured) said it was the FTSE 100 specifically that he was most bearish about.
Yearsley explained that with the Covid-19 vaccine and Brexit result occurring at the same time this alleviated much of the short-term pessimism and uncertainty around the UK.
“This will lead to money flowing back into UK equities – I’m a big buyer of UK mid- and small-cap stocks as they are more domestically focused but the FTSE 100 has far too big a proportion in overseas earnings and I think sterling will rally, in turn checking the progress of the index,” Yearsley said.
While being reasonably bullish on the UK, Husselbee acknowledged that it was facing some issues in 2021. He said Rishi Sunak’s Spending Review was a “sobering economic reminder”, of the major impact Covid-19 has had on the UK.
“This should give some pause, at least, in the face of increasingly bullish predictions for UK equities in 2021, although the market is cheap compared to the rest of the world and there will be clarity on Brexit for the first time in more than four years, for good or ill,” he finished.