2021 Q1 Client Letter

2021 Q1 Client Letter Summary of Market Performance

Summary of Market Performance

First Quarter Ended March 31, 2021

U.S. Equity Investment Environment

Supported by momentum in COVID-19 vaccinations, aggressive monetary and fiscal policies and expectations for a strong economic recovery, stocks moved higher in the first quarter. In a dramatic reversal of last year’s outperformance by mega-cap growth stocks, the first quarter’s leaders were Mid- and Small-Capitalization stocks. The S&P MidCap rose 13.5%, and the S&P Small Cap was up 18.2%, compared to the S&P 500’s 6.2% rise. The Russell 2000 rose 12.7%. Across all capitalizations, value stocks surged, generating the style’s largest quarterly outperformance versus growth in 20 years. This rebound was driven by optimism of an eventual re-opening of the economy, leading investors to rotate from interest-rate-sensitive growth stocks to beaten-down cyclicals. All S&P economic sectors were higher in the quarter led by the beaten-down energy sector that jumped 20.9%. Financials and industrials were next, up 16.0% and 11.4%, while information technology and consumer staples were the two bottom performers with respective gains of 1.0% and 1.2%. The largest industry dispersion was in the health care sector that rose 3.2%, led by health care services and equipment while pharmaceuticals and biotechnology lost -3.2% and -3.6%, respectively, the only two industry groups with negative returns in the quarter.

International Environment

International stocks were also positive but lagged their U.S. counterparts. A 2.6% gain in the Dollar Index held down returns for U.S. investors abroad. The All- Country World Ex-USA Index (ACWI X-US) was up 3.5%. As in the U.S., value trounced growth and small caps led larger issues. The ACWI X-US Growth Index returned -0.4%, while Value was up 8.3%. Non-US small caps gained 4.9% in the quarter. The MSCI EAFE index’s 3.5% gain matched the ACWI X-US. The UK’s 6.2% advance was responsible for most of EAFE’s gain, but France and Germany contributed as well with respective gains of 4.4% and 4.2%. In a strong quarter for global equities, emerging markets were an outlier, up 2.3%. After a period of strength, China was flat in the quarter at -0.4%, while India was up 5.1%. In Latin America, stocks were off 5.3% as Brazil and Columbia dropped 10.09% and 17.25, respectively.

Fixed Income Environment

Bond yields trended higher in the quarter as investors expected faster growth and inflation due to strong re-opening demand driven by massive fiscal and monetary stimulus. The 30-Year Treasury bond posted a -13.5% quarterly loss. Its yield rose for three straight months to end the quarter at 2.40% compared to 1.64% at the beginning of the year. The 10-Year Treasury yield nearly doubled to end the quarter at 1.74% versus 0.91% on December 31 st , near its 2019 year-end level. The Bloomberg Barclays U.S. Aggregate Bond Index was off 3.4% in the quarter as cash and high yield, up 0.02% and 0.9%, respectively, were the only positive performing sectors. Most bonds languished or lost value as yields rose. Municipal bonds lost only 0.4% due to strong demand in anticipation of higher taxes.

Commodities Environment

Apart from precious metals, commodities posted strong gains led by oil and copper. The S&P Goldman Sachs Commodity Index was up 13.6% in the quarter benefiting from the advance in the price of crude oil from $48.52 at the beginning of the year to $59.16 on the back of supply disruptions and OPEC and Russia’s decision not to increase production. Gold declined following renewed strength in the U.S. dollar, higher interest rates and investors appetite for risk assets.

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