The third quarter ended with risk assets taking a pause in September when global equities and traditional fixed income posted negative returns for the first time since March. The equity markets also experienced a sector rotation from tech towards the more economically sensitive sectors, specifically industrials and materials.
It was inevitable that the market’s strong comeback would eventually counter-resistance given that the economy continues to struggle with concerns around a potential second wave, structurally high unemployment, credit stress, and the US election. It is highly likely that we will see an extended period of time with a sideways type of price action from equities and little to no return from the fixed income side of the ledger.
At the risk of repeating ourselves, not much has changed in our views and how we are managing client portfolios – we remain cautious on equity markets, both public and private, which had been overvalued for some time, and are picking our spots. We continue to like the actively managed maturity and event defined strategies with tight risk control represented within our Stable Model Portfolio and have been rewarded in increasing these allocations since March. As a result, our Balanced Risk Model Portfolio experienced a positive return of 0.6% in September compared to its reference portfolio which declined by 1.4%.
Although it might seem the case, all investment portfolios are not built the same and a market such as the one we are presently encountering will ultimately expose weaknesses and structural flaws which will likely prove costly if not properly addressed.
The paradigm shift we have been referring to over the last several quarters where risk management matters more than ever remains firmly in place. Market volatility will remain elevated, now and not later is the time to take a hard look at asset allocations, measure true liquidity within portfolios and critically assess existing private strategies such as real estate, private equity and lending. Our adaptive multi-asset portfolios are designed to provide durable returns and reduce risk – these traits will buffer investors and are more needed than ever in today’s new economic reality.
This is not our first financial crisis nor will it be our last. Steve and Jon each have over 25 years of experience protecting and preserving capital through multiple periods of financial stress. Disciplined risk management (framework, structure and process) and intelligent diversification (via portfolio construction) will continue to remain one’s best edge. Capable and competent leadership combined with a high level of technical expertise are of critical importance in successfully reaching the other side.
July 1, 2020 to September 30, 2020
North American Equity Markets
Canada: TSX composite +4.68%, TSX 60 +4.30%, TSX Small Cap +7.11%
US: Total Market +9.24%, S&P 500 +9.04%, S&P 500 (C$) +6.81%, Russell 2000 +5.03%, Dow Industrials +8.18%, NASDAQ 100 +12.21%
International Equity Markets
EAFE Developed: FTSE EAFE +6.00%, FTSE Europe +4.78%, FTSE Asia Pacific +7.40%
Emerging: FTSE +10.23%
Canada: Total Market +0.39%, IG Credit +1.05%
US: Total Market +0.40%, Short Govt +0.07%, Medium Govt +0.20%, Long Govt -0.07%, IG Credit +0.82%, High Yield +4.46%
USD Index -3.68%, CAD +1.86%, Yen +2.18%, Euro +4.13%
Broad Index +3.66%, Gold +5.83%
Global Equity Market Valuations – Valuations and Total Risk Returns:
(Source – iShares US, Blackrock, Research Affiliates, Portfolio Visualizer, etfdb.com)
Global Equity Market Valuations – Price Earnings Ratios:
(Source – iShares US, Blackrock, Research Affiliates)
Download the complete Third Quarter 2020 Market Commentary & Performance:
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.