Reversal to the mean?

22 apr. 2021

Dear Investors,

During the first quarter of 2021 we saw the stock markets post further gains. Since the MSCI All Countries bottomed out last year in march it has rallied substantially (+63%) and now stands 9% above its pre-covid peak. While countries that did well on their vaccine rollout - like the UK and USA - soared the highest, virtually all regions ended the quarter substantially higher. Emerging Markets, which had a great run in 2020, had some difficulties in February and march causing them to lag the developed world a bit.

While rising optimism about global growth drove most markets higher, style-wise we have seen a huge discrepancy in the returns between current and last year. On the one hand, the enormous stimulus cheque signed by the Biden administration and increasing commodity prices boosted those companies that investors had avoided like the plague at the height of the pandemic. On the other hand, the rise in bond yields hurt those sectors whose profits lie far ahead in the future - like technology stocks - the most. As a result, there is a reversal in the performance between sectors.

The shift in momentum from growth to value stocks helped our funds quite a bit. Vector Navigator is up 14.5% year-to-date, outperforming its benchmark index by 5.6% so far. Vector Flexible gained 9.3% during the first quarter, which also compares favourably with its Morningstar category index. The benchmark suffered from rising yields and stands at just 3.7% year-to-date. As Flexible uses future contracts to hedge its equity exposure we were not caught on the wrong side of bond duration - unlike many of our colleagues that use a more traditional approach.

Best regards,

Werner, Thierry and Nils