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Asset Class Reports
Canterbury Review: Fourth Quarter 2020

Vaccine Success, Presidential Election, and Market Rally

  • U.S. stock markets ended the year at another all-time high, benefiting from a rebound in economic growth and earnings. The conclusion of the U.S. election and positive news on COVID vaccines helped more cyclical segments of the market recover. Value stocks had their best quarter in over a decade, but still lagged growth equities by a wide margin for the calendar year.

  • Emerging markets (EM) equities outperformed European equities for the quarter and year. In the U.K., concerns about a new variant of the COVID virus led to renewed restrictions. A second wave of infections hindered other European countries as well. Among emerging markets, South Korea and Brazil led gains in the quarter.

  • U.S. core bonds ended the year with positive returns given the Fed’s commitment to QE. The long end of the U.S. yield curve steepened slightly as growth rebounded on the back of the vaccine news. Many expect the Fed to eventually purchase bonds with longer maturities, which may keep long-dated rates range bound over the next several years. Non-U.S. developed rates remained in negative-yielding territory as global central banks continued to signal easing monetary conditions.

  • Investment grade (IG) and high yield (HY) spreads tightened, albeit at a slower pace relative to the middle of the year. IG spreads tightened from 401 bps to 103 bps while HY spreads tightened from 1087 bps to 386 bps from peak-to-trough in 2020.

  • Low-rated credits rebounded as they continued to outperform high-rated credits. Moreover, low quality bond performance coincided with positive returns in value and small cap-oriented sectors. Emerging market debt also performed well and participated in the renewed growth story.

  • Commodities and energy-related assets generated positive returns as the global economic restart narrative took hold. Demand for precious metals and other inflation-hedged assets soared as the market assessed the potential for significant currency debasement given easing Central Bank guidance.


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