Like the first quarter, rising yields and the vaccine rollout will play a significant role in how the capital markets behave in the second quarter, and the balance of the year. While we do know Global Central banks are in no hurry to raise short term rates, it will be longer term rates that exude their influence. With that said, rising rates are typically a reaction to rising inflation which itself is a reaction to stronger economic growth. In effect, stronger economic growth also has a positive impact on business revenue and earnings. The question is at what level will rates begin to detrimentally impact economic growth? While we don’t know the exact number, we do know that we’re nowhere near that level.

We would also suggest that the progress in the rollout of the vaccine can certainly be viewed as a positive for economic growth for the balance of 2021, and beyond. As most of the world gets vaccinated over the coming year, global economic growth will recover substantially. In fact, in some areas of the world such as the US, economic data such as manufacturing, are nearing pre-Covid levels. With that said, any significant, and sustained, resurgence in the virus (as we are now seeing) will only add to market volatility. As well, any disappointments in the supply of the vaccine or increased risk of death from some of the virus variants will also add to market volatility.

Finally, we’d like to finish this commentary with a couple of observations.

• Our client’s portfolios have significantly less public equity exposure to achieve similar returns to that of a traditional portfolio for any mandate.
• Traditional portfolios have very little, to no exposure (besides bonds) to offset equity risk.
• As inflation rises, longer term bonds will perform poorly.
• In a rising inflationary environment, you want exposure to real assets and short-term higher yielding quality securities. Assets that do well in the environment include those that we’ve provided our clients exposure to over the past year: Real estate, Agriculture and Timberland, private infrastructure, and institutional quality private debt.

While we’ll never be presumptuous to say that we will outperform every quarter or year, we feel very comfortable to say that our client’s portfolios are exceptionally well positioned for the long term, regardless of the economic environment.

Regards,

Kinsted Wealth