The days are long, but the years are short

“The days are long, but the years are short.”

I quoted this in my market update letter of March 2020, in the heat of the pandemic induced stock market panic. And here we are, one year later already.

If feels like a lifetime ago that we were all adjusting to the shock of the initial lockdown, the uncertainty around mask wearing and the challenge of stocking toilet paper. How naïve we were about the future then!

Yet as I write these words, I must also recognize that we are as naïve about the future today as we were about the future then. It is the very rational awareness of that naïveté that informs our investment philosophy. We know we can’t predict the future today any better than we could one year ago.

So, we design investment portfolios that account for our lack of foreknowledge. We design portfolios that will always have some parts that stabilize while others charge ahead. Because when the unexpected happens, and it always does, it is those parts of the portfolio that save you.

Since the beginning of this year:

• The Canadian Bond Universe has declined by 5.0% in the face of rebounding interest rates, while the Canadian Short-Term Bond Index has declined by only 0.6%
• Canadian and Global Real Estate Investment Trusts (REITs) have rebounded by 9.2% and 5.0% respectively.
• The Canadian stock market has returned 8.1%
• The broad US stock market has returned 4.9%
• International Developed stock markets have returned 2.1% and Emerging markets have returned 1.0%

Source: MorningStar Direct

Very encouragingly, we see that value stocks have continued to outperform their growth counterparts in the first quarter of 2021, which builds on the shift that started with the vaccine announcements in November of 2020. With the return of a more normal way of life, the prospects of the large growth stocks, led by the big tech names we all know, have receded somewhat.

We have been rebalancing all portfolios to take gains on US equity, as the gains last year on the US stock market were very strong. Now that interest rates have rebounded closer to pre-pandemic levels, we can buy bonds at more reasonable prices. Where possible, we are also buying REITs which are still a relative bargain compared to where they stood before the pandemic.

Though we are undoubtedly heading into a third wave, progress on vaccine rollout continues to be a source of good news for Canadians. With a 7-day rolling average of over 185,000 doses administered nation wide, and new studies released on the efficacy of vaccines preventing infections, we have much more to be hopeful about than we did a year ago. We enter this third wave more fatigued, yes, but also more aware and better prepared. A few more long days yet to endure, but the end is in sight.

Wishing you a happy Easter, Passover, and a joyful start to the Spring.

Peter