The first quarter economic data of 2021 continues to point towards a major economic recovery around the world. By design, your portfolio is invested in many issues tied directly to the recovering economy. Last year saw investors go overboard on high-tech glamour issues - companies making little if any money and generating no positive cash flow. This year the markets are rewarding investments in companies with real profits, cash flow and dividends. We continue to like bank stocks, energy, gold mining, fertilizer, and pharmaceutical issues among others.
This year, interest rates and inflation are also on their way back up. Most fixed income investments are down sharply for 2021. The negative returns are close to double digits depending upon duration. We believe bonds will continue to be a “bubble” market in 2021. Traditional fixed income investments have the potential to drop by as much as 15% to 20% by year end. You may notice your fixed income holdings are almost all “floating rate” issues avoiding this risk. We also have large money market balances at quarter end. This is not a permanent home but more of a safe port in the storm.
Higher inflation and runaway government spending are currently our biggest worries. We are monitoring the same and will act when necessary.
A special thank you for your understanding of the past year. The pandemic brought unprecedented downward moves in economic growth and, for a while, investment prices. Interest rates also plunged to 0%. We managed portfolios throughout the last twelve months with discipline while also taking advantage of markets underpricing value stocks. This approach is the reason your portfolio(s) have fully recovered and are now at “new high-water marks”.