Happy New Year! More than any year in recent memory, this traditional January greeting seems more welcome and genuine for the start of 2021.

The past 12 months has taught us a lot, and has reminded me of many of the basic principles of investing. Investing requires patience and discipline. With a plan in place, the long term objectives can stay in focus while the short term volatility of the market is more easily tolerated. The time in the market is more important than timing the market. And financial markets are forward looking, as today’s prices are based on expectations for both companies and the economy at some point in the future. 2020 tested much of this. And while the new year offers hope that the worst is behind us, we remain diligent in our assessment of progress in the economic recovery and of investment opportunities.

Much of the direction of the markets over 2021 will be determined by growing immunity and continued efforts to slow the spread of Covid-19. Herd immunity is widely considered to be a minimum 70% threshold. We’ll be watching for clues to success in the Middle East as the region is more quickly vaccinating their populations than anywhere else. Israel is leading at more than 20% receiving a vaccine, and United Arab Emirates and Bahrain are not far behind that rate. Economic recovery and the behaviour of consumers in those countries will be closely monitored.

I will acknowledge some caution for the year ahead simply because the consensus view appears to be so widely accepted. There is a well-documented belief that the economy, and therefore the financial markets, will continue to grow and even gain in strength as vaccines are distributed, restrictions are lifted, and corporate earnings return to pre-pandemic levels. This abundance of enthusiasm is something to be aware of as investors may have a reduced concern for risks. The growing economy will need to be managed and policy makers will be forced to closely monitor inflation and rising prices of all assets for the first time in a long time. Most central banks in the developed countries have indicated monetary policy will remain accommodative for the foreseeable future and higher inflation targets will be tolerated. In addition, the stimulus that governments are making available to support the economy continues to grow in size.

Looking back on 2020, it can be characterized by a market of have’s and have not’s, or those companies that survived and even benefited from the environment created by the pandemic, and those that didn’t. Canadian markets lagged U.S. and global markets for much of the recovery during the second half of the year due to the makeup of our economy. Investors were focused initially on high growth, transformational companies and those with business models and products or services that demonstrated resiliency through those very difficult economic conditions. Many companies considered to be part of the value segment of the market, those heavily tied to the ups and downs of the general economy, struggled to regain their losses from February and March. More recently this value segment, including much of the Canadian market, has made up some lost ground on a growing conviction of vaccine distribution and the belief that ample fiscal stimulus will lead to further repair, more recovery in the economy and improved corporate earnings. I do expect this broadening of market stability to continue, a sign that confidence in the growing recovery remains strong.

Our objective is not to try to time a shift from segment to segment, or geography to geography, or theme to theme, but to identify leadership and change within each those segments, geographies and themes. From this we build well-constructed portfolios that offer exposure to the best companies in those sectors that are most likely to benefit from the changed economy. In equities, we have maintained positions in our preferred Canadian and U.S. financial, telecommunication, industrial and consumer companies. And we are positioned to benefit from those businesses that offer exposure to the digital transformation of companies, growth in e-commerce, development and advancement in drug therapies and medical devices, retailers that are focused on brand, convenience and experience, and restoring North American industrial production. I continue to like many of the companies we have seen material gains from over the past year such as Element Fleet Financial (EFN), CargoJet (CJT), Constellation Software (CSU), Kinaxis (KXS) and Thomson Reuters (TRI). And we continue to look for new ideas that will complement and add value to our portfolios.

Managing assets in fixed income continues to be challenging, and best left to the professionals that strictly focus in this space. The fixed income portion of portfolios serves three purposes – income, safety and liquidity. In this environment, with yields expected to remain lower for longer, generating income will be more difficult without sacrificing safety and liquidity. We need to ensure we have all the tools available to us to be able to earn some yield while protecting the principal value of our money. This includes government and corporate debt, fixed-rate and floating-rate bonds, high grade credit and lower grade credit, long duration and short duration bonds, and even different securities within a company’s capital structure such as terms loans, convertible securities and preferred shares. Finding the right team of professionals with the experience to deploy all of these tools is critical.

We are hopefully at the beginning of the end of this catastrophic pandemic. And while hope is known to be a terrible investment strategy, it is clear that we’re in a period of incredible innovation and disruption, and the economy that lies ahead will be very different. Much of this change is for good.