April 2021 featured a continuation of the year-to-date grind higher in stocks, enabling most North American equity indices to reach all-time highs. The catalyst for this strength remained ongoing policy stimulus and the re-opening of the U.S. economy. Meanwhile, this rally has masked significant factor volatility, which in turn has driven rising dispersion between the returns generated by different investment styles. Fortunately, given that security selection at Forge First is driven by a company’s ability to generate free cash flow, our funds are largely agnostic towards factor rotation and have been able to maintain net returns in the middle of the proverbial fairway.
It’s not surprising that Q1 of 2021 was good for equities, the question is whether the optimal conditions that drove stocks higher will move from the front windshield to the rear-view mirror during the remainder of this year. Before we assess that probability, let’s review the quarter that marked the anniversary of COVID-19.
Another action-packed month in markets saw bond yields spike, oil soar and all North American indices deliver solid returns despite the sea of red during the last week of February. Once again, the funds at Forge First profitably navigated these stormy waters.
Last month’s 2021 Market Lookahead commentary (December Commentary) included the text, ‘we continue to be of the view that the near-term setup for stocks remains good given the ‘market nirvana’ combination of open-ended stimulus and the pending recovery in earnings. While we expect cyclical and value-oriented stocks to outperform ‘high growth, momentum’ stocks during the next several months, neither do we foresee interest rates climbing enough to cause a stampede away from these heavily weighted securities.’ Our message today remains the same.