2021 should ‘look very different’ from 2020: Janus Henderson

Yahoo Finance’s Alexis Christoforous and Matt Peron, Director of Research at Janus, discuss the latest market moves and outlook for 2021.

Video Transcript

ALEXIS CHRISTOFOROUS: Joining me now is Matt Peron. He is Director of Research at Janus Henderson Investors. And Matt, good to see you.

So you say the markets will do well next year, but they're going to look very different from the market we have this year. How so?

MATT PERON: Yeah, that's right, Alexis. 2020 was a historically pretty narrow market, and by that I mean very few sectors, and even stocks, performed quite well. And then there was the have-nots, who really lagged the market. And that was really-- the majority of stocks were laggards, so it was quite a narrow market by historical standards.

So we think that coming into 2021, given the recovery that we expect, you should expect to see that broaden out and we will see more participation from the broader market. So it will look very different than last year-- or 2020.

ALEXIS CHRISTOFOROUS: What are some of the themes-- sort of the sector themes that you see in 2021? What are some areas of opportunity-- maybe some overlooked areas this year, because we have had such a bifurcated year, that investors might want to look towards?

MATT PERON: Well, in general, we would still stay with the secular winners-- the long term winners. Again, we take a long term view. That's generally what we do. But you can tilt more towards, and by, a broader basket of the stocks that really were punished or lagged because they were impacted by the coronavirus restrictions, et cetera.

So for example, in online travel, there will be travel. People will come back. I think there's pent up demand. As soon as they feel safe, whether that's in March, June, September, who knows. But they will come back, and we'll see those companies recover. Medical devices of another sector where the elective procedures have been paused, well, those are certainly not going away and we're going to need to catch up to those.

So we'll see recovery from the sectors that were punished, but still in really good places in terms of positions within their industry, to participate in the broader recovery. And hopefully for the next few years as the cycle starts anew, to participate in what should be durable gains coming.

ALEXIS CHRISTOFOROUS: This has certainly been a challenging year for income investors, because one of the worst performers of the year have been the dividend paying stocks. Do you see that changing in any kind of a meaningful way in the early part of next year?

MATT PERON: Yeah, well, we have our dividend index, the Janus Henderson dividend index, where we track dividend payouts by the 1,200 largest companies across the globe. And it has been a very challenging year, not just for the stocks, but dividends.

The reason for that is dividends have been cut. In the US, for example, the dividends were down about 5% we expect to come in at the end of the year. So it was no surprise that dividend paying stocks in general were down mid single digits, or upper single digits, for the year.

So another sector that should benefit from the recovery would be dividend stocks. And we're seeing signs of life there. Buybacks have started to pick up again. Buybacks are up 50% quarter on quarter, and that usually is a harbinger of better times for dividends because managements feel more confident in the future, and therefore they're raising capital return to shareholders, both through buybacks as well as through dividends.

So we expect to see dividends start to increase, and you've got some [INAUDIBLE] is going to let banks, for example, continue to make and increase their payouts in 2021. So we think it will be a better year for dividend paying stocks in general.

ALEXIS CHRISTOFOROUS: Are you concerned at all about this new strain of the virus that seems to be making its way here now from England? Are you concerned that it's going to delay the reopening trade and delay the economic recovery?

MATT PERON: Yeah, it's certainly something to keep an eye on. It's a risk factor. And we always say that while we think the recovery is going to start to take shape early in next year, and certainly get reflected more in that recovery basket I talked about, it's not going to be a straight line. We're going to see bumps along the way, through either some issues with the vaccine, or through, perhaps, another strain or mutation, et cetera.

So they're going to be two steps forward, one step back. We hope that this is, as the experts seem to think, not something at this point we need to be worried about in terms of vaccine efficacy. And if that holds to be true, then I think, as the market has generally done, is looking through that. And so, so far we're cautiously optimistic this will just be a setback, hopefully nothing more than that.

ALEXIS CHRISTOFOROUS: Quickly, do you like anything outside US equities right now? If somebody was looking to do to diversify a little bit in the new year, where else might they look?

MATT PERON: Yeah, I think in general, as I said about the broadening market, it was really-- from a regional perspective, the US was the primary winner last year. And we would expect that to broaden out as well to other regions. I think most of the regions will have some amount of catch up.

We would favor-- again getting back to the theme of owning what you want to own for five years-- we probably focus more on Asian equities as the long term secular winners in our preferred region. But again, we will see broadening out in the other regions, in Europe in particular, over the next 12 months. That's to be expected.

ALEXIS CHRISTOFOROUS: All right. Some would say a little overdue. Matt Peron, Director of Research at Janus Henderson Investors. Thanks for being with us.

MATT PERON: Thank you, Alexis.