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FINANCE| 12.28.2020

Portfolio construction for 2021 — Rankia


Ismael García Puente

Investment manager at MAPFRE Inversión

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 “Expecting the unthinkable” is in and of itself a meaningless phrase since you can’t expect something that you have not already thought of. However, in my opinion, there is nothing better than this piece of nonsense to describe what happened in 2020, a year that is just behind us.

True, this is not the world’s first pandemic (and it might not be its last), but it has perhaps been the first to be quite so internationally widespread due to the globalization of recent years. This has resulted in a great loss of human life and many inhuman sacrifices on the part of health-care workers as they tried to save as many lives as possible. It has led to a race among scientists to find an effective vaccine as quickly as possible. To scientists, health-care workers and anyone who has faced the storm in an attempt to halt the pandemic: Thank you so much!

Unthinkable, too, is the fact that a year where we saw record declines in GDP in most countries, where our PMI readings fell below 20, where we even saw West Texas futures trade in negative figures, is coming to a close with the stock markets scaling new heights, or at least flirting with them. And for this, THANKS are owed to the central banks who, through their intervention and the blank checks they gave to governments with which to issue debt, have supported the markets.

2020 has also been a positive one for MAPFRE Asset Management (MAPFRE Gestión Patrimonial — MGP), thanks to the three pillars on which our consistent portfolios are constructed:

1. Establishing a good asset allocation model. Studies show that as much as 80 percent of a portfolio’s return can be attributed to asset allocation. And as proof of this, years like 2020 allow us to compare the best fund in the worst category (LATAM equity) with the worst fund in the best category (US equity) and see that the latter outperforms the former by almost 2 percent.

2. Limiting losses. By their very nature, consistent portfolios are portfolios that have been constructed to avoid any losses that would be difficult to recover within a reasonable time frame. Never forget that a 50 percent loss requires a 100 percent gain just to return to pre-loss levels.

3. Forget about market timing. There’s nothing worse for investors than missing the best market days because they were speculating about the best time to enter the market or excessively rotating their portfolio. Imagine what portfolio returns would have been in 2020 without the revaluation the day Pfizer announced that its vaccine was ready.

Bearing all of this in mind, we consider the Morgan Stanley Asia Opportunities Fund to be an ideal candidate for consistent portfolios due to its philosophy of low turnover, looking to the long-term, focusing on the best ideas and the extremely successful track record of its team.