Make sure you have exposure to value funds as well as growth funds now. We currently favour Canadian equity funds over their US counterparts.
Fiscal stimulus and ultra-low interest rates helped stabilize stock markets in 2020. These factors, along with reports of more vaccines for the coronavirus towards the end of the year, have caused stocks to rise to record levels in the US and near-record levels in Canada. Investors are looking forward to economic normalization—the so-called ‘light at the end of the tunnel’.
But the tunnel may prove to be a long one. The coronavirus pandemic will remain a key challenge for the global economy this year. Case counts and fatalities are reaching records levels, countries are locking down, and governments are experiencing challenges in their efforts to inoculate enough citizens to provide for herd immunity against COVID-19.
Tighter restrictions should impair economic growth and will likely lead to stock market volatility during the year. Nonetheless, the economic recovery exceeded expectations in 2020, and many economists are looking for strong, mid-single digit global gross domestic product growth in 2021, after a 4.0-per-cent contraction last year.
But near-term risks are weighted to the downside as the virus continues to spread. Eventually, though, chances are good that the virus will be brought under control and economies will normalize. This is what we think you should focus on when it comes to investment planning in this environment.
Continue to buy equities gradually, possibly increasing the size of your investments when, and if, the market pulls back. That way, you’ll likely improve your long-term returns.
Strategies to adopt
One of the themes we’ve explored in this issue is the relative fortunes of ‘growth’ and ‘value’ investing. Growth investing should continue to enjoy some momentum in the near-term, as technology stocks benefit from stay-at-home consumers. Eventually, though, value investing should prove its worth as the economy returns to normal.
If you’re already invested in growth funds such Mackenzie Canadian Growth, be sure to balance your portfolio out with an investment in a value-oriented fund such as Fidelity Canadian Large Cap. In general, we favour Canadian equity funds over US funds right now, due to the Canadian market’s more attractive valuations.
Another area of the market we like now is emerging markets. Many developing countries in Asia, notably China, have arguably dealt with the coronavirus more efficiently and are now reaping the benefits of their efforts, while the West remains bogged down in a defensive war against the virus. We like Dynamic Asia Pacific and RBC Emerging Markets Equity Fund now.
Small-cap stocks stand to do better when the economy improves. Taking a position in IA Clarington Canadian Small Cap or Mawer Global Small Cap in anticipation of that improvement may be a good idea now.
This is an edited version of an article that was originally published for subscribers in the January 15, 2021, issue of Money Reporter . You can profit from the award-winning advice subscribers receive regularly in Money Reporter. 
Money Reporter , MPL Communications Inc.
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