Asset Class Recap as of 3/31/2021
The year is off to a strong start for stocks, but bonds are hurting. Diversification across many asset classes helped long term multi-asset investors enjoy a good first quarter. The rollout of COVID vaccinations has continued to help investors feel more confident about earnings and the economy in general. Unemployment has continued to improve and consumer spending is returning to normal. These trends have propelled prices for many stock markets to all-time highs.
Unfortunately for most bond investors, interest rates have been climbing sharply since last August, when the yield on 10 year treasury bonds got down to 0.51%. Yields on those bonds climbed to 0.92% at 12/31/20, and hit 1.68% at 3/31/21. Higher interest rates help bond investors earn higher returns in future years, however, when interest rates climb, fixed coupon bond prices drop for current bondholders and we typically see negative total returns for bonds (which we had last quarter). In rising US rate environments, we also often see the dollar get stronger relative to other currencies, which puts a drag on returns for foreign denominated investments (which happened last quarter).
| Asset Class/ Category Returns As Of 3/31/2021 |
Return at 3/31/21 |
Annualized Return |
Annualized Return |
Representative Benchmark or Index Name | |
|---|---|---|---|---|---|
| Large Growth US Stocks | Russell 1000 Growth | ||||
| Large Value US Stocks | Russell 1000 Value | ||||
| Small Cap US Stocks | Russell 2000 | ||||
| International Stocks | MSCI EAFE | ||||
| Emerging Market Stocks | MSCI Emerging Markets | ||||
| High Yield Bonds | BBgBarc US Corporate High Yield | ||||
| Long Term Gov’t Bonds | BBgBarc Long Term US Treasury | ||||
| Intermediate Bonds | BBgBarc US Agg Bond | ||||
| 3 Month T-Bills | BBgBarc US Treasury Bill 1-3 Mon | ||||
| Target Date 2035 Cat Avg | US Fund Target-Date 2035 | ||||
| 70-85% Equity Alloc Cat | US Fund Alloc 70% to 85% Equity |
Source: Morningstar Data on 4/12/21
The 1 year returns in the table above show how remarkably swift and strong the stock market rebound has been since last year’s pullback.
Bitcoin is another asset that has enjoyed strong appreciation recently. Six months ago, you could buy one Bitcoin for under $11,000. At 3/31/2021, it was worth $58,919. I suspect that a significant driver of this appreciation was that some popular sites like PayPal added the ability for millions of users to quickly and easily convert dollars to Bitcoin and vis-a-versa. Further adoption may increase demand and push Bitcoin’s value up further, but this price inflation may be temporary and may fade quickly.
A few clients have asked about whether they should add Bitcoin to their portfolios. I like to think about Bitcoin the same way I think about gold - it can add “tail event” safety to a portfolio and has low correlation to other assets, but returns can be elusive. Cryptocurrencies do not pay dividends or interest coupons, so making a profit with these investments depends completely on price appreciation. I do not own physical gold and I do not currently own Bitcoin - not because I think there is anything wrong with them, or because I don’t value lower risk - I simply prefer to hold investments that have historically demonstrated that they are more likely to generate higher returns over multiple market cycles (traditional stocks and bonds). I recently read a terrific writeup on Bitcoin from Ray Dalio, Chief Investment Officer at Bridgewater. If you have any interest in cryptocurrency, I recommend reading it. https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin
Disclosures-
Opinions expressed are as of the current date; such opinions are subject to change without notice. Advyzon Investment Managementshall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only. The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment.
Performance data shown represents past performance. Past performance does not guarantee future results. All investments involve risk, including the loss of principal. There can be no assurance that any financial strategy will be successful. This commentary contains certain forward-looking statements. We may use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.
Investment management and financial advice offered by Advyzon Investment Managementis intended for citizens or legal residents of the United States or its territories. Investing in securities involves risks, including but are not limited to; currency risk, political risk, geographic risk, concentration risk, custody risk, asset class risk, management risk, market risk, operational risk, passive investment risk, securities lending risk, tracking error risk, tax risk, valuation risk, and infectious illness risk. Investing in emerging markets may increase these risks. Emerging markets are countries with relatively young stock and bond markets. Typically, emerging-markets investments have the potential for losses and gains larger than those of developed-market investments. A debt security refers to money borrowed that must be repaid that has a fixed amount, a maturity date(s), and usually a specific rate of interest. Some debt securities are discounted in the original purchase price. Examples of debt securities are treasury bills, bonds and commercial paper. The borrower pays interest for the use of the money and pays the principal amount on a specified date.
The indexes noted are unmanaged and cannot be directly invested in. Individual index performance is provided as a reference only. Since indexes and/or composition levels may change over time, actual return and risk characteristics may be higher or lower than those presented. Although index performance data is gathered from reliable sources, Advyzon Investment Managementcannot guarantee its accuracy, completeness or reliability.
Cryptocurrencies, including Bitcoin, are currently unregulated, illiquid, uninsured, carry technological risks, require unique tax treatment, and are volatile.
