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Executive Summary
What a Difference a Few Months Can Make!
Our portfolio positioning, which included stakes in the expected economic recovery, has proven exceedingly profitable.
This quarter, the deployment of multiple vaccines against COVID-19 has reversed the market trends that had taken hold earlier – such as the emphasis on technology, digital currencies, and gold. In fact, markets rotated their sectors, sent earlier darlings packing, and made the first quarter of 2021 almost a perfect mirror image of the fourth quarter of 2020. Resources (including oil), manufacturing, logistics/transportation, and direct-to-consumer stocks won investors’ favour. We had already bought them when they were out of style, and have been greatly rewarded.
The United States and parts of Asia have reopened their economies, thanks to infection control and vaccination efforts. This has accelerated a rebound that governments and central banks had worked overtime to foster through active intervention. To the tune of many trillions of dollars globally, national governments implemented new deficit spending, direct income distributions, enhanced employment support, and planned infrastructure spending to keep the economy moving. Central banks around the world have expanded the money supply to levels never before thought possible.
On the Horizon
Despite all these positive developments, our strategy does not change. We keep an open mind and remain aware of multiple possible outcomes when making portfolio adjustments. We also factor in the less probable eventualities that would have a high impact. Vaccines are a perfect illustration of that category of events (on the positive side). If, in early April of 2020, someone had told us that nearly 5% of the world population would be vaccinated against COVID in twelve months, this statement would have been filed in this “highly unlikely, but very impactful” category.
With that perspective in mind, we are taking many variables into account. On the negative side, these include: new variants and their effect on the trajectory of the pandemics; the widening wealth divide; political turmoil, public fatigue to health measures, and stresses on healthcare systems. Also, inflation, which almost no-one is currently talking about, could very well make quite a comeback and have various systemic effects.
Indeed, though lower than their pre-COVID-19 levels, bond rates in both Canada and the U.S. have already begun to rise, especially government bonds. This will be good for the banks and the financial sector generally.
Our Commitment
The goal remains to find great assets and purchase them at reasonable prices. We limit the risk of the assets we own by reducing or even selling out those that are too overvalued. We remain steadfast on that approach.
As always, we thank you for your trust in managing your investments and are always happy to hear from you. In the meantime, be well and stay strong!
