FROM OUR INVESTMENT COMMITTEE: Q1 2021 in Perspective

MODERNIST’S ASSET CLASS INVESTING PORTFOLIOS ARE STRATEGICALLY INVESTED WITH A FOCUS ON LONG-TERM PERFORMANCE OBJECTIVES. PORTFOLIO ALLOCATIONS AND INVESTMENTS ARE NOT ADJUSTED IN RESPONSE TO MARKET NEWS OR ECONOMIC EVENTS; HOWEVER, OUR INVESTMENT COMMITTEE EVALUATES AND REPORTS ON MARKET AND ECONOMIC CONDITIONS TO PROVIDE OUR INVESTORS WITH PERSPECTIVE AND TO PUT PORTFOLIO PERFORMANCE IN PROPER CONTEXT.

During the first quarter, global stock markets continued to post positive performance and build on their strong finish to 2020. Major global market indices ended the period modestly higher with several indices continuing to reach new record highs.

During the quarter, efforts to combat the virus and its impact continued as governments worked to support global economies – this included the recent additional U.S. fiscal stimulus payments and the initial proposal of a $1.9T infrastructure spending plan set forth by President Biden’s administration.

In addition, Americans began frequenting businesses in higher numbers that were hit hard during the peak of pandemic lockdowns. Some view this as a sign that the U.S. economic recovery might be progressing more quickly than initially expected.

Source: Morningstar Direct April 2021. Market segment (Index representation) as follows: U.S. Large-Cap Stocks (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. Small-Cap Stocks (Russell 2000 Index), U.S. REIT Stocks (Dow Jones…

For the quarter, U.S. stocks (as measured by the S&P 500 Index) gained 6.2%, and non-U.S. developed market stocks (as measured by the MSCI World Ex U.S.) gained 4.0%. Emerging market stocks (as measured by the MSCI Emerging Markets Index) gained 2.3%.

The U.S. Dollar Index, a measure of the value of the United States dollar relative to a basket of foreign currencies, increased in the first quarter—the U.S. dollar increased by 3.7% compared to foreign currencies. Over the past 12 months, the U.S. dollar depreciated by 5.9%. The decrease in the dollar is a tailwind to non-U.S. investments held by U.S. investors for the last 12 months.

U.S. interest rates remained unchanged during the quarter as the Federal Reserve continues to maintain a target range of 0.0% to 0.25% for the Fed Funds rate.

U.S. Economic Review

Following its best quarter in history, the final reading for fourth quarter 2020 GDP showed an annualized increase in economic growth of 4.3%. The unemployment rate finished the quarter at 6.0%, which shows improvement from the previous quarter’s 6.7%. Domestic inflation remains low as the Fed’s preferred gauge of overall inflation, the core Personal Consumption Expenditures (PCE) index, stayed below the Fed’s target of 2.0% with a reading of 1.4% in February 2021.

Financial Market Review

Both domestic and international stocks across all size and style categories, as well as U.S. real estate investment trust (REIT) securities, had positive performance during the quarter. International stock returns were also impacted during the quarter by the strengthening U.S. dollar.

During the quarter, U.S small-cap stocks were the best performing and emerging-market value stocks were the worst performing. U.S. and global bonds were each down slightly during the quarter.

 

In the U.S., small-cap stocks outperformed large-cap stocks in all style categories. Value stocks outperformed growth stocks in all style categories. Among the nine style boxes, smallcap value stocks performed the best and midcap growth stocks experienced the worst loss during the quarter.

 

In developed international markets, seven of the nine style boxes were positive for the quarter. Value stocks outperformed growth stocks in all style categories. Among the nine style boxes, international large-cap value stocks performed the best and international mid-cap growth stocks experienced the worst loss during the quarter.

Source: Morningstar Direct April 2021. U.S. markets represented by respective Russell indexes for each category (Large: Russell 1000, Value, and Growth; Mid: Russell Mid Cap, Value, and Growth; Small: Russell 2000, Value, and Growth).

Source: Morningstar Direct April 2021. International markets represented by respective MSCI World EX USA index series (Large: MSCI World EX USA Large, Value, and Growth; Mid: MSCI World Ex USA Mid, Value, and Growth; Small: MSCI World Ex USA Small, Value, and Growth).

A diversified index mix of 65% stocks and 35% bonds would have gained 5.0% during the first quarter.

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THE INFORMATION PROVIDED IS FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE INVESTMENT ADVICE AND IT SHOULD NOT BE RELIED ON AS SUCH. IT SHOULD NOT BE CONSIDERED A SOLICITATION TO BUY OR AN OFFER TO SELL A SECURITY. IT DOES NOT TAKE INTO ACCOUNT ANY INVESTOR'S PARTICULAR INVESTMENT OBJECTIVES, STRATEGIES, TAX STATUS OR INVESTMENT HORIZON. YOU SHOULD CONSULT YOUR ATTORNEY OR TAX ADVISOR.


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