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Most equity markets began 2021 at record highs, even as global economic data have been weakening, making it difficult for investors to be entirely comfortable adding risk to portfolios. Chalk it up to TINA – There Is No Alternative to equities.

“Bullish but cautious in the near term” is a common refrain among Wall Street strategists. Morgan Stanley’s U.S. equity strategist Michael Wilson, for instance, believes that March 2020 marked the beginning of a multi-year bull market. At the same time, his weekly report released Monday included a warning: “We must acknowledge that the ‘risk reward’ of the US equity market has deteriorated materially and the market is ripe for a drawdown.”

Citi’s U.S. equity strategist Tobias Levkovich voiced similar sentiments in his weekly publication, writing that “euphoric sentiment translates into the potential for sharp downward market moves in an environment where few can see imminent catalysts for such dips.” He adds that a lot of the post-pandemic earnings recovery is already priced into stocks. Mr. Levkovich advises investors to be adaptable in 2021, using potential volatility to add exposure to small cap and economically sensitive stocks.

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There is, however, a huge positive for equity markets that could overshadow all these concerns – inflows that would normally go to bonds. U.S. 10-year Treasury yields are trending around negative 1 per cent once inflation is taken into account and domestic bond yields are almost as fully in negative territory.

Faced with the near certainty of losing spending power over time holdings bonds, equities are looking far more attractive to investors. This is particularly the case for insurance companies and pension funds that need to meet long-term liabilities.

Worldwide, stock valuations are at the high end of their historic ranges. But in discussing whether stocks are too expensive to buy, Barclay’s strategist Jeff Bigelow responds with an entertaining movie reference metaphor (from Zombieland): “What multiple do you put on Twinkie in the Zombie Apocalypse? … [if] there are only a handful of Twinkies left on the planet.. you could make a case for a $100 dollar Twinkie.” His point is that earnings growth and yield now are almost as scarce as Twinkies would be in a dystopian future, and investors will be willing to pay dearly for it.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

5N Plus Inc. (VNP-T) Shares of this specialty metals and chemicals producer soared Monday to their highest in nearly two years alongside a rosy outlook for the renewable energy sector in 2021. 5N sells eco-friendly and electronic materials used in a range of applications such as security, aerospace, sensing and imaging, renewable energy and technical materials. Brenda Bouw takes a closer look at the stock. (for subscribers)

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The Rundown

A 2021 vision: what every fund manager is buying (or selling)

Dump the U.S. dollar! Buy emerging markets! Stay sustainable! These are among the consensus trades investment banks and asset managers reckon will dominate financial markets in 2021. Vaccines will - hopefully - make 2021 the year of recovery from the COVID-19 pandemic, which has upended some sectors and reinforced the dominance of others. Here are five trades the world’s biggest investment houses seem to agree on. (for subscribers)

A bullish 2021? Investors shouldn’t ignore the case for caution

Will investors party even harder in 2021 as vaccines turn back the coronavirus? Or will they suffer a nasty hangover, reminiscent of the dot-com crash two decades ago, when reality refused to live up to impossibly high hopes? Ian McGugan looks to the year ahead, and examines some threats to the bullish consensus. (for subscribers)

Gordon Pape’s outlook for 2021

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The long-time financial journalist and newsletter publisher sees stock market gains this year, as the widespread distribution of vaccines feeds investor confidence. But he thinks advances are likely to be less impressive than some analysts expect. Here’s his outlook. (for subscribers)

That brief market plunge in March has served up a wealth of 2020 hindsight

Looking back on a year of endless, overwhelming disruption to daily life, the 2020 global stock market crash stands out for its incredible efficiency. But this is not how market cycles are generally supposed to play out. Tim Shufelt explains. (for subscribers)

Also see: From best to worst, here’s how every stock in the TSX Composite performed in 2020

The baby boomer’s guide to managing a TFSA, RRSP and other investments using online broker apps

Mobile stock trading is a thing, boomers. Rob Carrick tells us what he learned about these apps so you can judge how to deploy it in your own investing. (for subscribers)

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This past year taught us important lessons on risk tolerance

It’s easy for investors to overestimate their tolerance for risk in good times, only to wish they’d been more conservative when losses loom large during a market crash. Similarly, after the markets rebound, they might wish they had been more aggressive in bad times. 2020 provided a useful lesson. Norman Rothery explains. (for subscribers)

A dividend portfolio still beating the market after all these years

Investing in the stock market isn’t rocket science, according to retired university professor David Stanley. Ten dividend stocks are all that’s needed, selected according to a simple rule. It’s so simple that less than an hour of effort is required every year. Yet the returns are pretty good – good enough, in fact, to beat the market, year after year. Larry MacDonald takes a look at the strategy. (for subscribers)

Will renewables’ bright outlook dim in 2021?

Canada’s renewable energy sector enjoyed a remarkably strong performance in 2020, as stocks soared amid a global shift toward cleaner energy. Good news: Many observers believe this shift has further to go, offering a reason to stay bullish in 2021. David Berman has this analysis. (for subscribers)

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Others (for subscribers)

John Heinzl’s model dividend growth portfolio as of Dec. 31, 2020

The highest yielding stocks on the TSX, plus risk data

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Six million dollar trades reported by company leaders

Gold mining insiders cash in on surging prices in 2020

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Contra Guys: Our picks really panned out in a turbulent year

Others (for everyone)

Tech’s reign over U.S. stock market to be tested in 2021

How investors view the Georgia U.S. Senate runoff

S&P dividend payments to investors hit record in 2020

Ask Globe Investor

Question: It seems that the EV (electric vehicle) and driverless car industry will grow considerably in the coming years. My investment institution does not have a mutual fund or ETF that focuses on this sector. What might be a fairly aggressive way to invest in this sector? - Bruce M.

Answer: I suggest you look at the Evolve Automobile Innovation Index Fund (CARS-T). It seems to fit your goals perfectly.

This ETF seeks to replicate the performance of the Solactive Future Cars Index Canadian Dollar Hedged index. It invests primarily in companies that are directly or indirectly involved in developing electric drivetrains, autonomous driving, or network connected services for automobiles.

Major holdings include many names that only people familiar with the industry would know. There are 34 stocks in the portfolio. They include FuelCell Energy (9.8 per cent of assets), NIO Inc. (4.4 per cent), Plug Power Inc. (4 per cent), Ceres Power Holdings 3.8 per cent), and ITM Power (3.6 per cent). If you are looking for companies like Apple and Tesla, they’re not here.

About 47 per cent of the fund is in U.S. companies, with 9 per cent in China, 8.5 per cent in Japan, and the rest scattered world-wide.

The fund was launched in 2017 and performance so far has been exceptional. As of Dec. 25, the year-to-date gain was 93.6 per cent. The three-year average annual compound rate of return was 32.8 per cent.

You also get a small amount of cash flow with this ETF. The monthly payout is $0.011 or $0.132 a year. That works out to a yield of 0.03 per cent, so clearly this is not a good choice if you need income. This is a capital gains play.

The management fee is very reasonable at 0.4 per cent plus taxes. There are also U.S. dollar units available, which have generated a slightly higher return (CARS.U). – G.P.

--Gordon Pape

What’s up in the days ahead

Should you invest in green bonds? David Berman will share some insight.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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