WESCAP Group’s Q4 2020 Quarterly Commentary
Portfolio results for the last quarter of 2020 were characterized by significant gains around the globe for stocks, commodities and credit-sensitive bonds. Unlike the prior three quarters, the S&P 500 and technology stocks lagged smaller cap and value stocks as the post COVID-19 recovery expectations strongly factored into asset pricing for these formerly unloved asset classes.
U.S. large-cap stocks (S&P 500) returned 12.2% for the quarter and 18.4% for the year. Small-cap U.S. stocks (Russell 2000) did better with a gain of 31.4% for the quarter and 20.0% for the year. Foreign developed stock markets (EAFE) also did well, returning 16.1% for the quarter and 7.8% for the year. Approximately 5% of this return was from other currencies outperforming the U.S. dollar. Emerging markets stocks returned 19.7% the last quarter and 18.3% for all of 2020.
Despite the general stock market indices showing gains for the year, the COVID epicenter sectors, energy, travel, commercial real estate, entertainment, restaurants and several others, showed losses for all of 2020. Some of these could become 2021 leaders as the economy struggles back to normality.
Long-term Treasury bonds (Bloomberg/Barclays 20+ Yrs) lost 3.0% over the quarter as interest rates rose modestly. High yield bonds made 6.5% over the quarter and emerging markets local currency bonds were up 8.2% over the quarter. All were up for the year as well.
T-Bills (Bloomberg 1-3 month) provided no appreciable return for the quarter thanks to the U.S. Federal Reserve setting short-term interest rates close to zero. While good for borrowers, savers are at a disadvantage. Finding relatively low risk replacements for T-Bills, CDs and money market funds has been one of the major 2020 investment adjustments that needed to be made.
COVID-19 has had a tremendous human and economic toll, but highly effective vaccines should help improve the situation before mid-2021. Low interest rates, strong fiscal stimulus, and improved global trade look to make 2021 a strong recovery year around the globe.
Higher potential taxes, increasing debt burden, increasing geopolitical unrest and possible valuation bubbles in some stocks and sectors will pose risks that will need to be navigated in 2021.
We will discuss some of these topics in greater detail in our upcoming 2021 Economic and Investment Outlook.
As always, please feel free to reach out to a WESCAP advisor if you would like to discuss any of this further.