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Vector 2021 Semi-Annual Review
22 Jul 2021
Rising optimism about global growth drove markets substantially higher, with the MSCI All Countries posting a year-to-date gain of no less than 15.87%. Yet, there was a clear discrepancy between sector returns during the first and second quarter of the year.
This is - in part - due to the fact that treasury yields had initially rallied as investors feared that the reopening of economies and the rebound in activity would fuel inflation. As a result, sectors whose profits lie far ahead in the future, like information technology, suffered during the first quarter of the year. Banks on the other hand, whose profits often rise in tandem with the yield curve, were off to a good start in 2021.
Even though the market’s prediction largely became reality, as we saw the Consumer Price Index post significant year-on-year increases in both April and May, the rise in treasury yields came to an abrupt standstill near the end of March. In fact, bond yields came down substantially from their highs during the second quarter as the Fed signalled successfully that inflation would only be transitory. Consequently, sectors that did very well initially lagged the market considerably in the second quarter and vice versa.
While the macro-economic situation of the first quarter of the year was a tailwind for the model, which tends to invest more heavily in smaller and cheaper companies, it did suffer from the style-reversal during the second quarter. Nevertheless, we believe that the rotation from growth into value still has a long way to go given the historically low valuation of value - compared to growth stocks and the probability of future treasury yields increases outweighing the odds of further decreases.
Vector Navigator returned 19.1% during the first half of the year, beating its benchmark as well as 9 out of 10 of its Morningstar category competitors so far. Flexible also had a great first half, recording a return of about 10.4%.
Werner, Thierry & Nils