The first quarter launched 2021 on a positive note. Risk markets ignored short-term economic setbacks and outperformed in anticipation of additional fiscal stimulus and widespread vaccine distribution. The equity market turnaround since COVID-19 lows has been astonishing, with the S&P 500 up 75%—the biggest 12-month increase since 1936.
While markets stayed broadly optimistic in the face of challenging conditions, bouts of volatility arose during the quarter as a stronger global growth outlook triggered inflation concerns, driving up bond yields and raising questions around future central bank policy.
We believe there are multiple ways to invest in this cyclical environment. These include investing in a set of asset classes that benefit from cyclical trends, actively positioning portfolios with specific biases, and/or by selecting managers that have the right exposures to benefit from cyclicality.