Monthly performance – March 2021

Sovereign Wealth Partners and InvestSense Pty Ltd



Markets were broadly higher throughout the month, capping off an extraordinary quarter and twelve months. A typical growth portfolio with around 70% in equities was up 3% for the quarter and some 20% for the past year. A conservative portfolio (mostly invested in bonds and cash) would have been flat for the quarter but still up by 10% for the past year.

However, a broader and healthier perspective would be to consider the snap back we have seen in markets in the context of the crash in markets that occurred in the first quarter of 2020. Still, few would have guessed, 15 months ago, that if an event like COVID was to happen then the value of their investments would still be up by between 4% and 8% (the range of returns from conservative and growth portfolios respectively since December 2019). Another lens to look at the last year is to split it into the 6 months immediately following the ‘COVID crash’ and the last six months since vaccines were announced and President Biden was elected.

In the first part of the year ultra-easy monetary policy and fiscal aid supported bonds and growth (tech) stocks while the stocks exposed to an uncertain ‘real economy’ wallowed. In the six months since Biden’s election there has been a rotation towards ‘old economy’, financial and energy (value) stocks. In the last three months especially fixed interest bonds have been under pressure.

Getting back to the more recent past, a much better than expected US jobs report and the announcement of the Biden administration’s highly anticipated infrastructure plan did nothing to reverse the path of the reflation trade. That meant markets around the world ended up between 1% and 4% during the last week of the month.

Of note was the fact that technology stocks also ‘caught a bid’ and the reaction of bond markets was muted (even though market implied inflation estimates continue to rise). This may imply that some of the air has been let out of tech sector valuations and bond markets have found some kind of an equilibrium, for now. The local equity market was more muted in the final stages of the month, amidst fairly low volumes ahead of the Easter break with modest gains from the miners keeping the market in positive territory.



Looking Forward

There remain a few corners to think around in terms of current markets. In particular there is a sense that ‘the game is afoot’ when considering the relative influence of earnings growth rates and discount (interest) rates, which are both potentially on the rise.  For equity investors the benefits of one could easily be more than offset of the negative impact of the other – for much of last year bad news for the economy meant ever cheaper money and proved to be good news for stocks. For now, central banks have not really been tested by some big inflation numbers but if and when they are, good news for the economy may be bad news for many stocks – ones whose valuations are dependent on very low interest rates and those which must borrow more to survive (so-called zombie companies).

As the nature of a reflating economy and the potential beneficiaries come into focus it becomes slightly easier to calibrate this against the rise in borrowing costs that is likely to accompany it and we can feed this into our Dashboard scenarios.


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