Quarterly Commentary



Despite the uncertainty of the US Presidential election, risk assets rallied sharply during the fourth quarter of 2020. Across domestic indices, the S&P 500, Dow Jones Industrial, and Nasdaq Composite rose 12%, 10.7%, and 15.7% respectively in the quarter. International and emerging markets performed even better with the MSCI world and MSCI emerging markets indices rising 14% and 19.6% respectively. Initial market fears of a change in administration were quickly replaced by optimism that a potentially large fiscal stimulus plan from the Biden Administration would provide a boost to risk assets. Markets responded enthusiastically to the potential reopening of the economy with cyclical companies outperforming broad indices. Interest rates rose and the dollar fell with financials and energy rising. Certain areas of the equity markets saw a burst of activity including SPACs, IPOs, and investment in alternative energy. In particular, SPAC financing has exploded as an alternative mean of becoming a public company. Overall, equity markets advanced due to investor belief that there will be a prolonged period of low interest rates, a new round of fiscal stimulus, and an economy that is on the upswing with mass vaccination programs in progress.
In the fixed income markets, US treasury yields rose (bond prices fell) in the fourth quarter. For the last decade monetary policy has been the primary tool used by policymakers. With the incoming Biden Administration, there is a sense that fiscal policy through increased spending will be used more predominantly as a tool. This realization has caused interest rates to rise off of the lows seen during the pandemic. The 5-year US Treasury yield rose from 0.26% on September 30 to 0.36% on December 31. As it stands now in mid-January, the yield has increased further to 0.45%. Again, this rise is generally the result of the shifting realization that fiscal stimulus will become a greater part of the calculus in the coming years supplemented by a broadly recovering economy. Spreads (the payment for risk above comparable duration treasury notes) on BBB rated corporate bonds fell from 1.85% on September 30 to 1.30% on December 31. Total yields on BBB bonds fell from 2.44% on September 30 to a new all-time low of 2.06% on December 31. All in all, credit markets are functioning well and investors are now accepting meager spreads over US Treasuries to invest in corporate bonds.


The alternative sector finished the year on a positive note as the HFRI Fund-of-Funds Composite Index rose by 7.5% during the fourth quarter and 10.3% for 2020, which is the index’s best performance since 2009. Specifically, ‘Equity Hedged’ and ‘Event-Driven’ strategies extended their outperformance during Q4 as the HFRI Equity Hedged (Total) Index and HFRI Event-Driven (Total) Index increased by 14.5% and 11.8%, respectively. We were pleased with our manager’s performance in 2020 as the majority of them were able to protect capital during times of heightened volatility and still participate and produce gains during the market’s rally. We remain confident with the current managers on our platform and are excited about several new managers that we are currently in the process of onboarding.

*Data taken from HFRI (Hedge Fund Research Indices) as of January 8th, 2021
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