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September 1, 2021

What’s Driving the Economic Recovery?

A dramatic curving downhill road towards the remote Loch Maree in Glen Docherty, in North West Scotland.

Now past the halfway point of 2021, we’d like to review what drove performance in the first two quarters – and what areas struggled to keep up – as well as highlight our market outlook for the second half of the year.

The drivers and the laggards

As global economies continued their post-pandemic recovery, equities and commodities achieved double-digit returns. Canadian equities delivered the strongest results amongst developed markets thanks to the energy and financials sectors. The Canadian dollar also did well against all major currencies due to improving demand for commodities and a rosier economic outlook.

Emerging markets trailed developed markets as slower vaccine administration and the spread of new strains of COVID-19 tempered returns. Globally, cyclical sectors with more leverage to the economic cycle delivered the strongest performance, while more defensive sectors lagged. Also, the value factor was the best performing factor for the first time since 2016.

Within fixed income, returns were mixed. Interest-rate sensitive areas like government bonds experienced negative returns as yields increased in response to expectations for a strong economic recovery and rising inflation. However, high-yield corporate bonds were positive for the year, buoyed by tightening credit spreads and risk-on sentiment.

Our outlook for 2021

In our 2021 market outlook, we shared our view that this year would be very different from the last. 2020 returns were driven by “stay-at-home” areas of the market – technology, large-cap companies and the U.S. equity market. We also predicted the winners in 2021 would be “reopening” areas of the market. So far, our expectations have been correct, and we believe the second half of the year will bring more of the same.

Our macroeconomic outlook for the rest of 2021 is bullish. With vaccine deployments, accommodative monetary and fiscal policy, and elevated savings rates, both lending and consumption should increase as economies reopen, with a high probability for exceptional economic growth.

Source: Bureau of Economic Analysis. As of June 30, 2021.

We continue to favour equity over fixed income. Inflation will likely fall from its current peak but stay elevated, and we remain focused on protecting our investors’ purchasing power. In equity markets, a strong economy should continue to support corporate earnings growth and drive markets higher. We still prefer cyclical sectors and factors that are levered to economic growth. We also expect long-term interest rates will trend higher over the rest of the year.

Source: Bloomberg Finance L.P. As of June 30, 2021.

Looking at fixed income, we maintain a shorter duration and prefer corporate bonds. While some commodity prices are cooling, the strong performance from oil should continue in the coming months. We expect the Organization of Petroleum Exporting Countries’ (OPEC) supply discipline and recovering demand to counter concerns about COVID-19 cases around the world.

Delivering returns through tactical asset allocation

In summary, we are very pleased with the strong absolute and relative returns we’ve been able to deliver for our investors. As the post-pandemic recovery plays out around the world, we will continue to use our portfolios’ flexible mandates to tactically allocate assets to take advantage of the opportunities and manage any risks as they arise.

If you’d like more information on our portfolio construction strategy and performance in Q2, check out our Q2 2021 Update video.

About the Author

Alfred Lam

Alfred Lam, CFA

SVP, Head of Multi-Asset
CI Multi-Asset Management

Alfred has more than 18 years of experience specializing in portfolio design, asset allocation, manager and fund selection, and risk management. While at CI Global Asset Management, Alfred has brought unique ideas and processes to the management of the team’s multi-asset strategies, including a mean-reversion currency management strategy, the concept of investing in concentrated and benchmark-agnostic portfolios, and a new approach to risk management. In addition to the Chartered Financial Analyst (CFA) designation, Alfred holds an MBA from the York University Schulich School of Business, and is a member of the CFA Institute and the Toronto CFA Society.

About the Author

Marchello Holditch

Marchello Holditch, CFA, CAIA

Vice-President and Portfolio Manager
CI Multi-Asset Management

Marchello Holditch, CFA, CAIA, Vice-President and Portfolio Manager, oversees CI's multi-manager, multi-asset investment programs. He is responsible for managing CI’s institutional and private client multi-asset portfolios and is a member of the CI Multi-Asset Investment Committee. Previously, Mr. Holditch led CI’s portfolio manager research and oversight function, where he was responsible for evaluating the investment managers of all CI funds. Prior to joining CI, Mr. Holditch worked at a major global consulting firm, where he assisted a wide variety of institutional clients with risk budgeting and asset liability modelling, as well as investment manager research and selection. He holds an Honours Bachelor of Mathematics degree in actuarial science from the University of Waterloo and is a CFA charterholder.



This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.


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Published August 24, 2021.