indicatorFund Commentary

Sub Advisor Insights—Markets Q1 2021

Compass™ sub-advisors discuss the market and analyze the events during the first quarter of 2021.

By ATB Investment Management 20 May 2021 3 min read

Cardinal Capital Management Inc.

Contributed by: Cardinal Capital Management Inc.

In the one year since global economies shut down as a result of the coronavirus pandemic, we have seen widespread vaccinations, easing business restrictions and massive government stimulus packages that are intended to spur the next economic boom. Confidence is slowly being restored in hopes of a return to some sort of normality. Renewed optimism for the global economies has helped drive equity markets to new highs.

The equity markets bottomed just over a year ago and the ending of the first quarter of 2021 implies that we have just wrapped up the first year of the next bull market. The broadening out of performance and the continued cyclical tilt in overall performance point to a healthy start. This broadening is highlighted by the fact that a significant percent of stocks (approximately 60%) have outperformed the S&P/TSX over the last 12 months. This is the highest level since 2010.

Canadian stocks have certainly started the year on a strong note with the S&P/TSX quietly outperforming many of its global peers in the first quarter of 2021. The S&P/TSX ended the quarter up 8.05%.


Canso Investment Counsel Ltd.

Contributed by: Canso Investment Counsel Ltd.

Investors entered the new year concerned with medical, economic and political challenges. In the U.S., the Democrats won control of the Senate, paving the way for the new administration to pass a larger stimulus package. Fiscal policy relief did not immediately allay investor concerns over increased COVID-19 cases and the impact of renewed lockdown measures. However, views changed rapidly as the vaccine rollout gathered pace and the prospect for an economic reopening crystallized. Economists quickly altered forecasts predicting a stronger recovery and higher inflation. Reassurance from the Federal Reserve that short rates would remain near zero, coupled with government support for the economy proved good news for equity markets but less so for bond markets. The U.S. government bond market recorded one of its worst quarterly performances as mid and long term yields moved sharply higher.

The Canadian economy proved more resilient than anticipated. Consumers and businesses adapted to Covid restrictions, and housing market activity surged beyond all expectations. Improving foreign demand and higher commodity prices brightened the prospects for exports and business investment. As in the U.S., inflation fears pushed the Canadian government bond market returns to negative as mid and long term yields moved sharply higher. Investment grade corporate bonds benefitted from modest spread tightening in the quarter but not enough to overcome the significant impact of rising government bond yields. Despite rebounds, levels of economic activity and employment remain well below pre-Covid levels. Vaccinations are being administered aggressively in the U.S. and U.K. but are lagging in Canada and parts of Europe.


Cidel Asset Management Inc.

Contributed by: Cidel Asset Management Inc.

The themes from the fourth quarter of last year continued into 2021, as the sector rotation accelerated to favour cyclical companies over defensive names, despite lockdowns and rapidly rising COVID-19 cases. The best performing sectors in the TSX were Healthcare +38% (prime example of pure speculation in negative cash flow cannabis stocks that make up this small sector), Energy +20% (rising oil prices due to reopening) and Financials +14% (banks: less loan losses, steeper yield curve). The worst performing sectors were Materials -7% (gold prices continued to be weak), Information Technology -1% (rising bond yields giving investors pause on high multiple stocks) and the defensive Consumer Staples ‘only’ +2.5%.


Mawer Investment Management Ltd.

Contributed by: Mawer Investment Management Ltd.

The strong performance of global equities continued in the first quarter, fuelled by progress on COVID-19 vaccination programs and the relaxation of pandemic-led restrictions in parts of the world. Due to an improving public health situation and the flood of easy money from unprecedented monetary and fiscal stimulus, many countries appear ready for a rapid economic recovery. But expectations for a robust global recovery have investors bracing for inflation, leading to a spike in developed-market bond yields that introduced some market volatility.

The selloff in bonds accelerated the rotation out of the “stay-at-home” stocks, i.e. companies that thrived during the downturn, and toward more economically sensitive sectors. Many cyclical, value-oriented, and lower-quality businesses—which had previously been beaten down by the pandemic—fared well in the first quarter.

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