Three Trends to Monitor in 2021
When we posted our annual “three trends to monitor” report last year, Covid-19 hadn’t even been named. Of course, it wasn’t long before we all had to adjust to an entirely new world. But two of the trends we identified—a continuation of the era of low interest rates, and the rapid rise of ESG (environmental, social, and governance) investing —proved to be spot on. When the pandemic hit in March, the Fed quickly cut interest rates to zero (and it won’t likely be raising them again any time soon). And by the end of 2020, after a year of economic, political, and social upheaval, ESG investing had come to the fore as well.
This year’s look ahead—Three Trends to Monitor in 2021—puts ESG front and center once again. As our report puts it:
“The horrific reality of rising death tolls, crumbling social institutions, and ravaged economies caused by the coronavirus drove home the dire consequences of ignoring ESG risks around us…. Even for the strictly capitalist investors among us, the sudden seizing up of international trade, negative oil prices, empty shopping malls, smashed-in retail establishments, and the near-collapse (again!) of the world financial system make a strong case for the profound impact of ESG or sustainability issues on financial asset returns.”
What will ESG investing mean for institutional cash portfolios in 2021? The short answer is a lot. Read our report for the longer answer with plenty of insights. (It’s also a useful addition to our past in-depth coverage of the issue.)
Second, it’s no surprise that another headline in this year’s report is the economic impact of coronavirus vaccines. The uncertainty about how quickly vaccine rollouts will enable the world to achieve something approaching herd immunity will complicate investment decisions tremendously. Will we see a fast economic rebound as people are able to travel and go to work safely again? If so, when? Or has the economic damage incurred to date been so great that we will see a very slow recovery, even with economic stimulus from Washington?
To answer those questions, you may still need a crystal ball. But our report can help you ask the right questions as you plot your 2021 cash portfolio strategy.
Finally, the third trend we highlight may sound like a bit of a sleeper. But you won’t want to be caught napping as the London Inter-Bank Offered Rate (LIBOR) benchmark slowly recedes into the sunset during 2021. We are encouraging everyone to start coming up the learning curve on the U.S. Treasury Department’s alternative, the Secured Overnight Financing Rate (SOFR). Our report will start you up that curve. (And for an even deeper dive, visit our August 2019 white paper on SOFR).
I’m hoping we won’t confront quite as many surprises in 2021 as we did in 2020. But, as always, the only certainty is a lot more uncertainty. So, I won’t be holding my breath for a boring, uneventful year. I will, however, offer up my hearty best wishes to you and yours for a healthier, happier, and more prosperous 2021.