• COVID-19 remains a significant public health concern and continues to hamper the global economy. The successful production and delivery of vaccines will be the two most important factors that determine the pace of economic recovery in 2021.
   
• Economic activity in the US has continued to improve from April’s low and is now 2.5% off its year-ago level1 (implying that the economy is still operating almost 5% below capacity).
   
• The economic rebound was driven by three factors. First, a large portion of the US population has been able to continue working and shopping virtually. Second, manufacturing and construction experienced strong recoveries. Third, income-support programs and the emergency lending facilities were successful in preventing a downward self-reinforcing spiral in consumption and employment.
   
• There is fear that US business activity could be throttled by additional lockdown orders during the first quarter. However, investors are looking beyond the valley. The promise of vaccines being widely available in the US and other developed countries has encouraged a risk-on, pro-cyclical posture in financial markets.
   
• While we have seen some evidence of a “Great Rotation” from growth to value and cyclical investing, we believe it is too early to tell if this is the beginning of a major secular shift in equity investment themes.
   
• In a year when most countries have been under severe economic and financial stress, the UK has endured more pain than most. The pandemic dominated the economic backdrop, but the prospect of Brexit made matters worse. The last-minute Brexit deal provided a Christmas gift of sorts, at least in terms of removing a degree of uncertainty in the UK as the deal addressed the transfer of goods although not commerce in services.
   
• Barriers to trade introduce economic inefficiencies. Post-Brexit, prices will likely end up being a bit higher, GDP a bit lower and supply chains a bit more unreliable.
   
• The pandemic has had one good outcome for Europe. It forced Germany and other fiscal “hawks” to allow an expansion in fiscal policy. This move away from budgetary austerity should be viewed in context. Most countries have experienced a sharp rise in red ink this year, and the biggest deficits are outside the eurozone. The memory of the European periphery debt crisis is still fresh in the minds of many policymakers; they realize that pushing for fiscal austerity measures prematurely would probably be a mistake.
   
• On the other hand, we think that there is greater need for other countries outside the eurozone to regain control of their finances. If those countries fail to do so, Europe could be the beneficiary of investment flows that would further prop up the euro and equity valuations.
• If the world economy enjoys a durable cyclical recovery in 2021, the dollar should continue to fall. This would also bolster the rally in commodity prices. Commodities of all sorts have been rallying sharply since the spring.
   
• A weak US dollar is an important catalyst for emerging-markets performance. We expect that the coming year will see the relative performance of emerging equities improve, partly because the dollar should continue to weaken.
   
• A full-length paper is available if you wish to learn more about these timely topics.

Important Information

This material is not directed to any persons where (by reason of that person's nationality, residence or otherwise) the publication or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not rely on this information in any respect whatsoever. Investment in the funds or products that are described herein are available only to intended recipients and this communication must not be relied upon or acted upon by anyone who is not an intended recipient.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. While considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

SEI Investments (Europe) Limited (SIEL) acts as distributor of collective investment schemes which are authorised in Ireland pursuant to the UCITS regulations and which are collectively referred to as the “SEI Funds” in these materials. These umbrella funds are incorporated in Ireland as limited liability investment companies and are managed by SEI Investments Global Limited, an affiliate of the distributor. SEI Investments (Europe) Limited utilises the SEI Funds in its asset management programme to create asset allocation strategies for its clients. Any reference in this document to any SEI Funds should not be construed as a recommendation to buy or sell these securities or to engage in any related investment management services. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application must be made solely on the basis of the information contained in the Prospectus (which includes a schedule of fees and charges and maximum commission available). Commissions and incentives may be paid and if so, would be included in the overall costs.) A copy of the Prospectus can be obtained by contacting your Financial Advisor, SEI Relationship Manager or by using the contact details shown below.

Data refers to past performance. Past performance is not a reliable indicator of future results. Investments in SEI Funds are generally medium- to long-term investments. The value of an investment and any income from it can go down as well as up. Returns may increase or decrease as a result of currency fluctuations. Investors may get back less than the original amount invested. SEI Funds may use derivative instruments which may be used for hedging purposes and/or investment purposes. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events.

In addition to the usual risks associated with investing, the following risks may apply: Bonds and bond funds are subject to interest rate risk and will decline in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. International investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments, securities focusing on a single country, and investments in smaller companies typically exhibit higher volatility.

The opinions and views in this commentary are of SIEL only and are subject to change. They should not be construed as investment advice.

This information is issued by SEI Investments (Europe) Limited (SIEL) 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR, United Kingdom. SIEL is authorised and regulated by the Financial Conduct Authority (FRN 191713).
Issued in South Africa by SEI Investments (South Africa) (Pty) Ltd. FSP No. 13186 which is a financial services provider authorised and regulated by the Financial Sector Conduct Authority (FSCA). Registered office: 3 Melrose Boulevard, 1st Floor, Melrose Arch 2196, Johannesburg, South Africa.

A number of sub-funds of the SEI Global Master Fund plc and the SEI Global Investment Fund plc (the “SEI UCITS Funds”) have been approved for distribution in South Africa under s.65 of the Collective Investment Schemes Control Act 2002 as foreign collective investment schemes in securities. If you are unsure at any time as to whether or not a portfolio of SEI is approved by the Financial Sector Conduct Authority (“FSCA”) for distribution in South Africa, please consult the FSCA’s website (www.fsca.co.za).

Collective Investment Schemes (CIS) are generally medium to long term investments and investors may not get back the amount invested. The value of participatory interests or the investment may go down as well as up. SEI does not provide any guarantee either with respect to the capital or the return of an SEI UCITS Fund. The SEI UCITS Funds are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available upon request from SEI. The SEI UCITS Funds invest in foreign securities. Please note that such investments may be accompanied by additional risks such as: potential constraints on liquidity and the repatriation of funds; macroeconomic, political/emerging markets, foreign currency risks, tax and settlement risks; and limits on the availability of market information.

For full details of all of the risks applicable to our funds, please refer to the fund’s Prospectus. Please contact your fund adviser (South Africa contact details provided above) for this information.

This commentary is intended for information purposes only and the information in it does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act.

SEI sources data directly from FactSet, Lipper, and BlackRock unless otherwise stated.