Star managers such as Richard Buxton, James Thomson and Robin Geffen are divided over whether 2021 will herald a significant shift in market dynamics or if 2020’s dominant trends will continue to thrive.
The past year left investors with an unprecedented set of challenges for investors to navigate and led to the emergence of some clear themes, including the underperformance of the UK, the continued success of growth investing and another surge in tech stocks. 
But will this continue in 2021, or will investors have to adapt to new circumstances?
While 2021 will see the UK start with the social distancing and other restrictions it had in place for much of 2020, Jupiter Asset Management’s Richard Buxton (pictured) believes there is “nevertheless cause for optimism for UK equity investors”.
Key for Buxton – who is Jupiter’s head of UK alpha strategy – is the fact that both the government and Bank of England seem determined to use whatever support is necessary to shore up the economy.
Other positives for the manager include the government’s “huge” commitment to infrastructure spending and the rollout of coronavirus vaccines. These have the potential to boost both economic growth and inflation.
Performance of UK vs global equities in 2020
Source: FE Analytics
“For those struggling to accept such an upbeat take on the outlook for UK equity investors, it is perhaps worth reflecting on a pertinent example from history, namely the Spanish ‘flu pandemic of 1918, which swept across a European continent already battered by the ravages of the first world war,” Buxton said.
“What followed became widely known as ‘the roaring 20s’, a period of huge economic expansion and innovation. If, as the saying often attributed to Mark Twain goes, ‘history never repeats, but it rhymes’, then the suggestion that we have many of the ingredients for ‘the roaring 2020s’ would be a poetic and apt point on which to conclude.” 
Richard Colwell (pictured), head of UK equities at Columbia Threadneedle Investments, is another manager who is bullish on the UK stock market, noting that it looks cheap when compared with developed market peers like the US and Europe.
However, he cautioned investors that any turnaround in the UK’s fortunes might not be immediate – although this shouldn’t necessarily put off those with a long-term view.
“That the UK remains so unloved typifies the high levels of consensus thinking in markets,” he said. “We continue to firmly believe in the UK, but trends often go on for longer than predicted. This creates the opportunity we see today, as it amplifies the impact when the switch in momentum finally occurs.”
Jupiter’s Buxton also believes that the above conditions would favour value stocks, which have underperformed growth stocks for several years and could prompt a change in market leadership. This view is shared by Fidelity Special Situations manager Alex Wright.
Performance of growth vs value over 10yrs
Source: FE Analytics
“Both UK equities and value stocks have been out of favour for a prolonged period and their share prices have proved particularly susceptible to the pandemic. While it has proved a challenging backdrop for value investors, this has resulted in an unusually broad choice of attractively valued stocks with good upside potential, including companies whose earnings are already exceeding expectations,” Wright explained.
“Improved visibility in respect of the timing of mass vaccine rollouts and in the wake of the conclusion of Brexit negotiations should boost investors’ confidence and lead them to broaden their investment horizons beyond the narrow range of secular growth stocks that have been in favour.
“While this may well lead them to reassess their expectations in respect of those stocks, UK value stocks remain cheap and offer some upside potential.” 
Turning to managers who look outside of the UK, Rathbone Global Opportunities manager James Thomson (pictured) does not expect the recent rally in value stocks to continue into 2021.
Although growth stocks lagged behind value in November – when the announcement of several effective coronavirus vaccines appeared to create a market inflection point – Thomson puts this down to investors selling their winners.
“It feels comfortable to take your winning chips off the table. So, the outperformers in a portfolio tend to get hit the hardest in the early part of a market dislocation,” he said.
“Growth stocks have been outperforming for the past 14 years, so the temptation is to believe that the recent rotation into value must continue. I could be wrong, but I think this will also be short-lived because growth stocks thrive in a world where widespread and resilient, reliable economic growth is hard to find.
“And I’m afraid that’s the world we live in. So, I believe that investing in growth stocks, the best ideas from around the world, will continue to deliver those all-important returns over the years to come.”
Robin Geffen, who heads up Liontrust’s global equity team, is another manager who sees one of 2020’s strongest trends continuing in 2021 rather than expecting a sustained rotation in market leadership.
Performance by MSCI ACWI industry in 2020
Source: FE Analytics
“Technology will again be a critical feature in stock markets in 2021,” he said. “Those companies that fail to use technology could become casualties and those that benefit from incorporating technology may become stock market heroes.”
He pointed to the recent collapse of Arcadia, owner of brands like Top Shop, Dorothy Perkins and Burton, as an example of the former. The company’s failure to build an online presence saw it lose market share to ASOS and Boohoo.
On the positives, Geffen added: “The FAAMGs (Facebook, Apple, Amazon, Microsoft and Google) have performed very strongly in 2020 and look well set for 2021. Microsoft and Apple pay good and fast-growing dividends and in time we believe the others will pay dividends as they mature.”
Ben Rogoff, manager of the Polar Capital Global Technology fund, highlighted the work-from-home technology beneficiaries as companies that look well-positioned for 2021.
“Though some will face headwinds or tougher competition they are likely to deliver strong growth and will remain supported by powerful, multi-year, secular tailwinds,” he added.
“The strong trends in the adoption of technology that have been accelerated by the Covid-19 crisis are likely to continue for many years to come and, as such, we still see many attractive stocks capable of delivering robust growth. We also see scope for more cyclical technology stocks to gradually recover, as well as some macroeconomic improvements ahead.”