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Investment Theme for 2021

 

In 2020 we saw decoupling of ground realities and stock markets. The reason is due to government monetary policies which were very accommodative and most countries responded with massive deficit spending to overcome the shocks to economy due to virus. We know that stock markets are forward looking which means investors have a great deal of optimism in future economy. In 2021 we can expect the interest rates to remain historically low and continued support from government in form of stimulus. With historically high cash balances and very low interest rates in bond markets – risk assets like stocks are still best haven to park money. There are two key factors in 2021 when it comes to US. First is the effectiveness of the vaccine for COVID-19 and further spread of the virus. Second prospect is the partisan control of US Senate. If both executive and legislative branches of US government are held by same party then markets can expect long pending reforms in infrastructure, immigration, education, healthcare and other critical aspects. Reform doesn’t actually have to happen, only the possibility of ‘reforms’ are enough to spark bullish sentiment. If both factors lead to favorable outcomes then the stock market gains will be further amplified. Divided government hinders progress, lowers business sentiment and confidence which eventually work against the economy in long run.

Irrespective of the outcomes of election or the virus – we should expect continued gains in stock markets mainly due to accommodative monetary policy by FED. In light of this I am going to go long on US based large cap ETFs. I am particularly fascinated by ARKW and IPO.

Data Center Real Estate Investment Trusts (REITs) seem to be a very good sector to be in given that data center spending across the world will keep increasing. I can’t find a good ETF for this sector so I recommend companies like CONE, DLR or COR

I also prefer ‘Consumer Staples’ sector for 2021. Consider VDC or KXI.

I am going to be adding a small exposure to crypto currencies in my portfolio in 2021. I am staying away from commodities, currencies and small caps this year.

This year too I am suggesting to ensure maximum possible contributions to 401k, HSA, Roth IRA, Traditional IRA and 529 accounts.

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