Quarterly Investment Review

A message from the Investment Management Team of Strategic Advisers LLC

By Brian Enyeart, CFA®,* President, Strategic Advisers LLC- First Quarter 2021

First Quarter 2021: Key Takeaways


Many countries have shown progress on their rollout of COVID-19 vaccines. This has led to optimism regarding global economic growth and corporate profits. 


We modestly increased exposure to stocks and added exposure to commodities. Meanwhile, we reduced exposure to investment grade bonds and short-term investments.


U.S and international stocks experienced gains, but investment grade bonds were down for the quarter.


The economic backdrop is improving. However, we are closely following developments on inflation, central bank policies, and fiscal spending.

Market Backdrop

Most major global economies closed the year in early cycle recoveries

  • As restrictions ease, consumers are spending more across broader parts of the economy.
  • Increased economic activity may lead to stronger corporate profit growth.

As the year kicked off, vaccines gradually became more widely available. As a result, consumers have started to engage in activities that they enjoyed prior to the COVID-19 pandemic. For example, a significant increase in TSA gate checks reflects rising demand for airline travel. Likewise, activity in online table reservation services indicates a boost in consumer demand for going out to restaurants.

Due to these trends, investors have raised their expectations for both economic growth and higher inflation. One consequence has been higher interest rates, which are typical during an early cycle recovery. As a result, bond investors experienced a volatile quarter.


Favoring stocks over bonds and short-term investments

  • Added to positions in stocks and commodities. They may benefit from rising inflation brought on by increased consumer
    and business spending.
  • Reduced exposure to investment grade bonds, short-term investments, and alternative investments. They may lag as the
    economy continues to recover.


Bond prices tend to fall as interest rates rise. However, not all bond investments are the same. We strategically positioned the bond allocations in your account as interest rates rose and the economy improved.

  • We maintained exposure to high yield bonds. They have historically experienced strong performance during economic recoveries.
  • We maintained greater exposure to bonds that may gain in value should inflation accelerate, such as Treasury Inflation Protected Securities (TIPS).
  • Within investment grade bonds we reduced exposure to longer duration bonds. They are more sensitive to interest rate increases and inflation.

U.S. Stocks

After a solid start to 2021, we adjusted our positioning within growth and value investments. We have allocated towards strategies that we believe can benefit from a broader economic re-opening. An example of this includes investing more in GARP (growth at a reasonable price) managers. GARP managers focus on growth stocks but keep a close eye on valuations as well.

We also trimmed our allocations to smaller company stocks. They experienced remarkable performance in the last few months. In fact, small companies returned 12.7%1 for the quarter vs. 5.9%2 for large company stocks. Therefore, their prices may already reflect strong growth expectations. We believe larger companies may hold more attractive investment opportunities.

International Stocks

We maintained greater exposure to international stocks than most client’s long-term allocation mix.

Within international stocks, we modestly increased exposure to developed market stocks. We also slightly decreased exposure to emerging market stocks. This reflects our view that there may be marginally better opportunities available in developed market stocks than emerging market stocks. That’s because the former has lagged the latter in performance over the last year.3

Investors expect economic activity to rise around the world as vaccine rollouts improve. Rising global economic activity has led most financial industry analysts to expect overseas earnings to grow faster than U.S. earnings.

How we have positioned  your bond investments for potentially less volatility

Because we actively manage your portfolio, we can adjust your investments as the economic environment changes.

Historically, bonds have experienced some volatility during periods of rising interest rates and inflation expectations. This is common during early cycle recoveries.

To help manage some of this risk, we have invested in bonds with shorter maturities. These bonds are generally less volatile than bonds with longer maturities.

Additionally, we have invested in different types of bonds that have historically been less sensitive to changes in interest rates and inflation expectations. These include TIPS, corporate bonds, and high yield bonds.

These steps may allow client portfolios to:

  • Benefit from the diversification of bonds
  • Maintain less exposure to changes in interest rates and inflation expectations.


Global stock market performance was positive, but bonds struggled 

  •  Both U.S. and international stocks outperformed bonds.
  • Rising interest rates led to challenges for investment grade bonds.

Rapid intervention by governments and central banks around the world have helped the stock market recover since April. Over the last year, large growth stocks led U.S. stock performance, while value stocks lagged. As for international stocks, emerging markets2 outperformed large developed markets.3

Market Performance: Quarter and One-Year 2021

Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. U.S. Stocks are represented by the Dow Jones U.S. Total Stock Market Index, International Developed Market Stocks are represented by the MSCI EAFE Index (Net MA Tax), Emerging Market Stocks are represented by the MSCI Emerging Markets Index (Net MA Tax), High Yield Bonds are represented by the ICE BAML High Yield Constrained Index, and Investment Grade Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index as of 3/31/2021.


A global economic recovery could support markets

  • Stocks have historically done well during economic recoveries, even when inflation has been rising.
  • Commodities have tended to perform well in inflationary environments.

The global economy may experience a robust recovery in 2021. This could lead to a powerful rebound in corporate profits. However, manufacturers and retailers may pass price increases on to consumers. Therefore, any economic recovery is also likely to lead to some inflation.

We believe inflation may trend higher for several months when comparing recent prices to those from a year ago. Last year, consumer activity was extremely low. Businesses offered discounts across a range of goods and services. Those discounts will likely disappear as consumer demand for goods and services rises. However, inflation can be a sign of a healthy economy. It can also support higher corporate profits since businesses can charge higher prices.

Therefore, our outlook on stock and commodity investments remains positive.

* The CFA designation is offered by the CFA Institute. To obtain the CFA charter, candidates must pass three exams demonstrating their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management, and security analysis, and must also have at least four years of qualifying work experience, among other requirements

1. Russell 2000 Index 3-month returns as of 3/31/2021.

2. Russell 1000 Index 3-month returns as of 3/31/2021.

3. See market performance table.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Indexes are unmanaged. It is not possible to invest directly in an index.

The views expressed in the foregoing commentary were prepared by Strategic Advisers LLC based upon information obtained from sources believed to be reliable but not guaranteed. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

Lower-quality debt securities generally offer higher yields, but they also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Investments in smaller companies may involve greater risk than those in larger, more well‐known companies.

Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.

Growth stocks can perform differently from the market as a whole and other types of stocks, and can be more volatile than other types of stocks.

Value stocks can perform differently from other types of stocks, and can continue to be undervalued by the market for long periods of time.

Index information:

Securities indexes are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Benchmark returns assume the reinvestment of dividends and interest income. Investments cannot be made directly in a broad‐based securities index.

- The Dow Jones U.S. Total Stock Market Index is a float-adjusted, market capitalization–weighted index of all equity securities of U.S.-headquartered companies with readily available price data.

- The MSCI EAFE Index (Net MA Tax) is an unmanaged, market capitalization–weighted index of equity securities of companies domiciled in various countries. The index is designed to represent performance of developed stock markets outside the United States and Canada, and excludes certain market segments unavailable to U.S.-based investors. The index returns for periods after 1/1/1997 are adjusted for tax-withholding rates applicable to U.S.-based mutual funds organized as Massachusetts business trusts.

- The MSCI EM Index (Net MA Tax) captures large and mid-cap representation across 26 Emerging Markets (EM) countries. Emerging market countries include: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With 1,401 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The index returns for periods after 1/1/1997 are adjusted for tax-withholding rates applicable to U.S.-based mutual funds organized as Massachusetts business trusts.

- Bloomberg Barclays U.S. Aggregate Bond Index is a market value–weighted index of investment-grade fixed rate debt issues, including government, corporate, asset–backed, & mortgage–backed securities, with maturities of one year or more.

Fidelity® Wealth Services provides non‐discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and Fidelity Personal Trust Company, FSB (FPTC), a federal savings bank. Nondeposit investment products and trust services offered through FPTC and its affiliates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, are not obligations of any bank, and are subject to risk, including possible loss of principal. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FPTC, FBS, and NFS are Fidelity Investments companies.

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