Markets, investing and what matters most: Quarter in review Q1, 2021

By Roger Lydiatt, CFA, CFP® 23 April 2021 8 min read

Written by Roger Lydiatt, CFA, CFP, co-authored by Tyler Simms, CFA, CFP and Jason Maniotakis, CFA, CFP on behalf of Private Investment Counsel, who believe in a holistic investment counselling approach to helping high net worth clients.

With 2020 in the rearview mirror, the first quarter of 2021 represented a new beginning for reasons beyond just the calendar. A year after the onset of lockdowns and the abrupt market correction, we finally saw a pinhole of light at the end of a long tunnel as the global vaccination rollout began in earnest, troubling civil unrest in the US capital was followed by a change in the Presidency, the NHL began an abbreviated season and some normalcy was restored to the lives of many Canadians. 

In the financial markets, January saw a collective surge of interest in many ‘investments’ that were relatively unknown to most people just a few months ago. Whether it was meme stocks like GameStop, non-fungible tokens (‘NFTs’), vintage sneakers, SPACs or NBA Top Shot, the collective euphoria early in the year for these new assets created a sense of FOMO (‘fear of missing out’) for many rookie and veteran investors alike. 

As the quarter wore on, the glitter of many of these investments gradually began to fade as the novelty wore off. More old-school, cyclical stocks began to outperform their growth-oriented peers for the first time in a long-time, as investors began to focus on the reopening of the global economy and what would be needed to rebuild. Equity markets were very strong in the first quarter, reaching new highs. Corporate earnings grew, and continue to grow, at a faster than anticipated clip, showing us that the recovery is beating forecasts. 

In the fixed income markets, we saw expectations of this higher economic growth driven by pent-up demand due to pandemic lock restrictions. The possibility of inflation caused bond yields to creep up, stunting fixed income returns in the quarter. Longer term bonds, being the most sensitive to rising rates, were hurt the most. 

Central banks have said that they remain committed to low interest rates for the foreseeable future, but all eyes will continue to remain on the rate of inflation and whether they can keep that promise. Most central bankers have expressed that they see the recent bump in inflation as ‘temporary’. But, temporary or not, if you’ve made trips to the grocery store or hardware store recently, higher prices can certainly be felt. Global economies continue to try to find their footing as vaccines get distributed and everyone prepares for the big reveal of the post-pandemic world.

Headlines that mattered this quarter1:

  • The S&P/TSX surged 8.1%, the S&P 500 rose 4.5% and the developed international markets (measured by the MSCI EAFE) were up 2.0%, all in Canadian dollar terms. 
  • The broad fixed income markets in Canada were down 5.0% in the quarter as the yield on the 10-year Canada bond rose from 0.43% in August 2020 to 1.5% in Q1 2021.
  • Commodities such as oil, corn, base metals and lumber all appreciated in value on the back of surging home renovation spending and global supply constraints. The S&P GSCI Commodity Spot Index was the leading asset class in Q1, climbing 15%.
  • The price of gold was paradoxically weak in the quarter, despite inflation expectations and a weak US dollar.
  • In mid-March, the United States signed a $1.9 trillion stimulus package into law.
  • The Canadian government extended the Canadian Recovery Benefit (CRB) and agreed to extend post-pandemic support further.


Chart of the quarter: Growth and value investing styles

For this quarter, we thought it would be interesting to show how the ‘growth’ and ‘value’ investing styles can be popular for long periods of time before eventually passing the baton. In the chart below, the current winning streak by the ‘growth’ style has lasted more than ten years. But, like any dynasty, things don’t last forever. Will the most recent quarter be one of those inflection points? Only time will tell.

Rolling 3-year annual return difference of growth vs. value

Inside the portfolio

In the first quarter of 2021, all CompassTM Portfolios (series O) and ATBIS Pools (series O) enjoyed positive returns, with the exception of the ATBIS Fixed Income Pool (series O).

Broadly speaking, rising bond yields hurt bond returns in the quarter. However, the combination of higher corporate bond exposure and shorter duration of our bond portfolios compared to the benchmark, the FTSE Canada Universe Bond index (TR), translated to substantial outperformance on a relative basis.

Within the Canadian equity space, large cap equities managed by our sub-advisors were on par with the benchmark, the S&P/TSX Composite index (TR), while small cap equities lagged the index due to a relative underweight to the recovering energy sector.

In US equities, the first quarter saw small cap names outperform their larger cap brethren. The relative overweight to indexed US equities in the Compass Portfolios and the ATBIS US Equity Pool more than offset the relative underperformance of our active large cap US component.

Finally, our International Equity mandate slightly underperformed the benchmark in Q1 due to softness in European industrial and financial names. However, the long-term performance above the benchmark remains very strong.

Compass Portfolios and ATBIS Pools returns, series O
Year-to-date to March 31, 2021

Source: ATB Investment Management Inc.

The road ahead

As we look down the road to the remainder of this year and beyond, two major concerns remain in the minds of investors—rising interest rates and inflation. Here is what our team is doing to protect and grow client capital in this environment:


  • We remain relatively neutral in terms of our current equity to fixed income weighting.
  • Our equity sub-advisors invest on behalf of our clients in resilient businesses. In part, these businesses are resilient because:
    • They have strong balance sheets and manageable debt levels that can withstand a rise in rates.
    • Most of these businesses have the ability to raise the prices of their goods and services, ultimately passing on any jump in the cost of inputs to the end consumers.

Fixed Income:

  • Our bond portfolios have relatively lower duration and as a result, lower sensitivity to interest rate changes, than major bond indexes like the FTSE Canada Universe Bond index. This helps protect against interest rate increases.
  • By holding proportionately more corporate bonds to government issues, our clients are better rewarded in this low and rising interest rate environment.
  • Our fixed income sub-advisor, Canso Investment Counsel, remains very flexible and opportunistic to pounce on opportunities when they present themselves.

Sub-advisor spotlight


Each quarter we’ll highlight what’s ‘under the hood’ of your investment portfolio by focusing on one of our sub-advisors. Each sub-advisor hired to manage our client’s investment assets is chosen based on a number of factors, including a disciplined investment process, strong internal governance, and an experienced and proven track record, particularly during periods of market decline.

For this quarter, we highlight one of our Canadian Equity managers whose ‘value’ investing style has seen a recent return to the spotlight. As described above, the ‘growth’ investment style has dominated the landscape for some time. The unpredictable length of these style cycles underscores the importance of building portfolios using managers with complementary investment styles, as the Compass Portfolios and ATBIS Pools are designed to do.

Cardinal Capital Management, Inc.

Firm profile

Cardinal Capital Management, Inc. (Cardinal) was founded in 1992 and is an employee-owned investment management firm headquartered in Winnipeg, Manitoba with four offices across Canada. Over the last 25 years, the firm has grown to manage over $3 billion in assets for individual investors and institutional clients. The firm’s primary objective is to earn consistent, above-average returns for clients while assuming below-average risk and volatility.


Cardinal was selected to become one of our Canadian equity sub-advisors in late 2019. They manage a portion of the Compass Portfolios and the ATBIS Canadian Equity Pool. Cardinal has a focus on long-term ownership of companies with strong, sustainable business models and with proven track records of growth in earnings, cash flows, and dividends. It does not invest in companies that would be classified as “deep value”, such as distressed companies or turnaround plays. As value investors, Cardinal attempts to invest in companies trading below their fundamental value as judged against the historical valuation, peer group, and their own projections of future earnings, cash flow, and dividend growth. Its portfolios are built with large-cap, high-quality stocks selling at below-average valuations. 

Portfolio spotlight

During the quarter, Cardinal maintained an overweight exposure to the Financial sector. This positioning helped the portfolio performance as the sector benefited from the improving outlook for economic recovery and a rise in interest rates across the middle and long-end of the interest rate curve.  As the recovery continues, loan growth and margin expansion will provide an improving backdrop to bank balance sheets.  Also, the provisioning for loan losses and excess capital will be more than adequate to offset any unexpected surprises. Later this year, capital restrictions should be lifted allowing the resumption of dividend increases (which we expect will be higher than normal given last year’s pause) and the resumption of share buybacks.


What are we reading and listening to? 

If you’re still scratching your head at the concept of non-fungible tokens (‘NFT’), here is a great FAQ-style article that explains the craze in simple terms.

Many of us with kids already know how popular Lego has become in recent years. Some of us may have even taken to building more complicated models ourselves during the pandemic. The James Bond 007 Aston Martin DB5, anyone? 

This fascinating CBC interview talks about the birth of the black market for Lego and what’s driving it.

Lastly, Morgan Housel recently wrote a stellar piece that talks about the ‘broad, 30,000 foot takeaways’ that we can all apply to the next, unknown crisis.



1 Source: Bloomberg

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