This past quarter saw markets continue to grind higher, with the S&P 500 index finishing at another record high, returning 8.2% for the quarter and 14.4% year-to-date. Driving this strong performance has been continued economic improvement as countries and cities move through their re-opening plans and we continue to move toward a post-pandemic environment.
From an investment perspective, financial assets, in general, are expensive and there are signs of excess in the markets: a slew of IPOs and companies going public via Special Purpose Acquisition Companies (SPACs) at lofty valuations, speculation and extreme price appreciation in individual stocks that are not based on underlying company fundamentals (see AMC or GME), and elevated fundamental metrics like price-to-earnings ratios, with the Cape-Shiller Price-to-Earnings Ratio at its highest level since 2000 (see tables below).
With many stocks at or near all-time highs, bond rates near all-time lows, and expectations of inflation, forward-looking returns for investors are likely to be more modest and at the risk of repeating ourselves yet again, one should not be complacent with respect to their investment portfolio. The diversification benefits of a traditional portfolio of 60% stocks and 40% bonds, which has worked so well in the past, faces increased headwinds and challenges looking ahead.
As we enter the second half of the year, questions about what is driving the markets forward are changing as well. It seems to be less driven by COVID-related data, and now more focused on classic concerns regarding economic growth, company earnings and outlooks, interest rates, inflation and subsequent actions by central banks and the Federal Reserve. While we don’t spend time attempting to make macro calls or forecast where the market is going in the short term, we are diligently focused on structuring portfolios to be resilient and perform to meet client goals across a wide range of potential economic outcomes.
The single biggest question for investors in 2021 and beyond continues to be how one will successfully navigate these uncertain and expensive markets to stay on track and make an acceptable long-term rate of return given their specific tolerance for risk.
We would like to thank you for your continued support and trust that you have placed upon us in being stewards of your capital.
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Anchor Pacific Investment Management Corp. (“Anchor Pacific”) is a Vancouver, BC-based portfolio management firm, which leverages process, technology, and infrastructure to democratize the process of managing endowment and pension style investment portfolios to deliver innovative, high-touch, and transparent investment programs across the full spectrum of asset owners and investment consumers.