Markets in a nutshell — January 2021
After key bourses achieved intra-month all-time highs, global equities took a breather as the vaccine-led cyclical recovery stumbled on the emergence of more contagious and more virulent COVID-19. Developed market equities declined while emerging markets advanced. US equities fell as negotiations progressed for a $1.9 trillion US stimulus package and December payrolls fell by 140,000 in America’s first monthly job losses since April 2020. European bourses also underperformed as fourth-quarter economic activity contracted more than expected and the EU bloc confronted more transmissible strains, with Germany, Denmark and Netherlands extending and tightening national lockdowns.
China led emerging markets higher as it recorded its biggest-ever trade surplus in December, helping its economy expand by 6.5% year-on-year in the fourth quarter of 2020. All other emerging markets including stalwarts Brazil, Russia and India fell.
Sector gains were led by energy, communication services and healthcare while consumer staples, industrials and financials underperformed. Interestingly, the volatility index (VIX) increased dramatically, fuelled by retail investors driving equity trading volumes to their highest level in more than a decade. These kinds of activities are often indicative of frothy markets.
Developed market bond yields remain exceptionally low with the prospect of near or medium-term US rate increases nearly unthinkable after US Fed Chairman Powell reiterated that tapering discussions were premature. After a period of weakness, the US dollar strengthened against the euro and Japanese yen, while weakening against the British pound. Industrial commodities oil, copper and iron ore continued to rise. Despite sluggish roll-outs, widespread adoption of COVID-19 vaccines through 2021 should begin to stall the pandemic and accelerate global growth. The improving global economic environment should continue to weigh on the dollar in the medium term.
The managers of the Foord International Fund continue to favour global equities over other asset classes but lowered the funds’ effective exposure using put options and short futures positions given elevated US equity valuations. The Foord Global Equity fund sustained its outperformance amid the volatility but the managers raised cash levels and implemented portfolio hedges against the expensive US markets to add downside protection for fund investors.
Both funds are finely balanced between capital preservation in the near term and meaningful inflation-beating returns over the longer investment horizon. In our view, the funds are exceptionally well-positioned for the unfolding environment.