April 2021 Portfolio Management Team Update

Elvis Picardo

April 8, 2021

With the TSX Composite, S&P 500 and Dow Jones Industrial Average reaching new record highs in March, global equities added to their February gains to finish the first quarter on a strong note and record their fourth straight quarterly advance.

The TSX Composite rose 3.6% in March for a Q1 gain of 7.3%. For the second successive month, index gains were broad-based and led by multiple sectors, including consumer staples (+9.1%), energy (+6.6%), financials (+6.5%), and communication services (+6.3%), with the utilities and consumer discretionary groups also gaining over 5%. The technology sector (-9.4%) was the worst performer in March, largely due to Shopify’s 16% plunge in the month. Health care was the only other sector to finish in the red, as biotechnology stocks fell.

The S&P 500 rose 4.2% in March for a Q1 gain of 5.8%, while the Dow Jones Industrial Average surged 6.6% over the month to advance 7.8% in the quarter. The Nasdaq Composite was a relative laggard, up only 0.4% in March and 2.8% in Q1.

While the “reopening” trade continued in full swing, the performance divergence between U.S. small and large companies shrank last month. The small-cap Russell 2000 index advanced 0.9% while the large-cap Russell 1000 gained 3.7%, leading to a performance differential of almost seven percentage points in favor of the Russell 2000 over the quarter (+12.4% vs. +5.5%).

On the currency front, the Canadian dollar gained against the US dollar to advance 1.4% over the quarter. Boosted by rising prices for energy and commodities and relatively attractive bond yields, the Canadian dollar posted its best quarterly performance in years against traditional safe-haven currencies like the Swiss franc and Japanese yen.

(Data Source: FactSet)

Our Strategy

Investors’ risk appetite continues to be buoyant as the second quarter commences, with U.S. indices at new highs on April 5 following solid economic data and the announcement of President Biden’s new $2.5-trillion stimulus plan. For the moment, investors appear to view rising bond yields and the occasional hedge fund blowup (like that of Archegos Capital in March) as acceptable collateral damage caused by an unusually strong economic outlook.

That optimism, however, could be dented by a resurgence in Covid-19 cases worldwide, causing some concern about a third or even fourth wave in many nations. Although those concerns are currently stifled by the millions now being vaccinated daily in the U.S. and the continuing rollout of the vaccines in other major economies, any threat of a renewed lockdown could be disruptive to markets.

In the first quarter, the Portfolio Management Team (PMT) deployed client contributions to their accounts promptly to take advantage of the strong upward trend in markets. The PMT believes that the outlook for equities continues to remain favourable over the rest of 2021. However, the advent of the seasonally volatile period for equities from May onwards calls for heightened vigilance and may necessitate occasional tactical adjustments in client portfolios.

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.