As the world anticipates the success of a vaccine for Covid-19, economists and securities analysts are trying to decide what a 2021 might look like. Will value come out from its eclipse by growth stocks? Will active management shine over passive?

Natixis Investment Managers asked these questions of institutional managers to glean their feelings about next year, and a couple of portfolio managers with the company discussed the results in a webinar early Tuesday.

What’s on most people’s minds is the disconnect between the nosebleed-high records for the indexes like the S&P 500 and the anemic recovery elsewhere. While some observers think there might be a day of reckoning and a correction, others think that the stock market still has room to expand further. Many growth sectors have thrived in a new world in which technology has played a major role. And much cash is still sitting on the sidelines with investors too skittish after the upheavals of early 2020.

But according to most of the institutional investors surveyed by Natixis, the economy is not going to be restored to its power next year. Seventy-nine percent of those surveyed said the market is underestimating the damage Covid-19 has done to the economy. Some 78% of those surveyed think the market expansion is unsustainable. Forty-four percent said that GDP would return to pre-Covid levels only by 2022, while 27% said it would be 2023 and 8% said it would be later. Only a little over 20% said it would happen by late 2021.

Ninety-five percent of the 500 institutions surveyed said that there could be a correction in at least one sector—whether it’s the stock market, real estate, technology or cryptocurrencies.

The government also has institutional investors concerned. Fifty-three percent of those surveyed thought the government spending required for Covid-19 could lead to a new financial crisis. Almost two-thirds of those surveyed anticipate the spending will require tax hikes.

Eight in 10 thought that the current environment will favor active managers in 2021. Fifty-eight percent thought value investments were going to outperform growth.

Esty Dwek, head of global market strategy at Natixis, said the value-growth argument is about the cyclical recovery of the markets after the economy begins to emerge from the eclipse of Covid-19.

“Obviously most of the cyclicals fall in the value category,” she said. “You have that catch-up. We’ve seen growth outperform for a number of years and we’ve seen that go almost to an extreme throughout the crisis, obviously with technology and health care and communications services ... really proving defensive, [and their] earnings proving resilient.” But now, she says, we’ve started to see a rotation. “We’re starting to see, with the optimism of the recovery in 2021 … seeing a move back into cyclicals, whether you want to call it the reopening trade, the catch-up trade, the values trade, the cyclicals trade.” The same dynamics might augur a move into international stocks, where there are more value investments, she said.

Small-cap stocks could also be a short-term winner in the “reopen” trade, said Jack Janasiewicz, a portfolio manager and strategist at Natixis. “Short-term, it would not be surprising to see small caps to continue to outperform. Longer-term, that outperformance will settle back down.”

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