The Cleveland, Ohio-based private bank spoke to this news service before the Georgia run-offs for the Senate, and did not expect big tax hikes from a Biden administration. It is positioned for recovery this year, and expects developments such as moves from fossil fuels.
Key Private Bank is skeptical that big tax hikes are coming soon in the US, if only because authorities want to revive the economy from the ravages caused by COVID-19.
Setting out its investment thinking to Family Wealth Report as a new year looms over the horizon, the Cleveland, Ohio-based private bank said that the lack of a big Democrat win in Congress has largely restrained worries that large tax changes are on the way soon. (That said, the Democrats’ wins in Georgia this month have moved that dial somewhat.)
“The markets generally embrace some form of divided government,” George Mateyo, chief investment officer at Key Private Bank, said.
Along with many of his peers, Mateyo is wrestling with how to position for a recovery and (hopefully) market gains this year, while trying to protect downside risks in a world where fixed income assets no longer provide as much portfolio protection as in the past.
Inevitably, some of the political environment came up in conversation. Mateyo said that so far President-elect Joe Biden appeared to be choosing the kind of cabinet figures of a sort designed to assure wary investors. For example, he has nominated former Federal Reserve chair Janet Yellen as his Treasury Secretary – which, if she is approved, would make her the first woman to hold the post. Her experience at the Fed is encouraging. “I think she is the right person for the job right now,” Mateyo said.
An important long-term consideration as far as trade policy is concerned, is that Biden is likely to adopt a more “collaborative approach” with Europe, while he may try and build more of a consensus among other nations on how to act towards China.
As far as sectors go, there will likely be a continued move from fossil fuels, affecting certain areas of the US economy. “That trend will likely hasten under a Biden administration,” Mateyo said. Cyclical sectors which have not fared so well during the worst of the COVID-19 crisis should perform more strongly in 2021.
Key Private Bank likes certain aspects of healthcare as a sector; it prefers companies whose fortunes aren’t tied to one product. “We like tool-makers: they’re not so susceptible to regulation.”
As for financials, the bank is neutral at the moment. The industry has gone through a long period of retrenchment and change.
With bond yields so low, fixed income in many ways doesn’t give portfolios the same kind of ballast as it used to, Mateyo said. “Fixed income may be fixed, but there’s not much income,” he quipped. “When markets got shaky in September and October, fixed income gave us no real protection and it is no longer really a diversifier. We do think, however, that fixed income can play a role in providing stability.”
Alternative asset classes have a place in portfolios, although clients must remember that dispersion of returns differ from conventional markets such as equities.
“We have looked at precious metals but we have not done a big push yet,” he added.