Global stock markets got off to a good start in 2021 with most markets rising quickly for the first 6 weeks of the year. What followed was a sell-off lasting nearly 3 weeks as markets re-treated before stabilizing and recovering later in March.

Bonds had a poor start to the year, reversing all the gains they made in 2020, with the Canadian Universe Bond Index falling 5.60% for the quarter. With more economies poised to reopen later this year, the three major central banks (Japan, Europe, and the USA) all indicated they would allow inflation to run higher, thereby keep their monetary policy “easy” to support markets.

The Canadian dollar (CAD) continued to appreciate during the quarter moving about 1% higher in conjunction with rising oil & gas prices. This will continue to be a headwind for Canadian Dollar investors in the near term, however, an 80 cent dollar is certainly reasonable in the long term.

Interestingly, we also saw a large dispersion amongst equity sectors with cyclical sectors such as Financials, Industrials, and Energy stocks outpacing growth sectors such as Technology and Healthcare (biotech). With economies expected to reopen in the summer and/or fall, the shift in investor focus from Growth to Value stocks could very well be underway.

In our Balanced and Growth model portfolios, we responded by exiting some of our more defensive holdings, like cash (CAD) and Loblaws, and moved into quality companies that are more cyclical, such as Air Canada and General Motors. In addition, the manager of Fidelity’s Global Innovators Fund, Mark Schmehl, indicated a similar shift within his fund away from some high growth names like Zoom, Tesla and Shopify, and into Electric Utilities and Travel stocks.

On a lighter note, the stranding of the Ever Given container ship in the Suez Canal was viewed by many as a welcome distraction from the daily COVID news coverage.

To say that this is an important trade route would be a phenomenal understatement. About 10% of global trade passes through the humanmade Suez Canal, which connects the Mediterranean Sea with the Indian Ocean, cutting off more than 7,500km for a trip from London to Mumbai.

We all know time is money, but for the Suez Canal, that saying holds particularly true. Around 50 container ships pass through the waterway every day, with an average toll fee of around $300k USD per ship. That means every day the passage is blocked is potentially $10-15m of lost fees, not to mention the delays and costs incurred by the waiting ships, which likely runs into the many millions as well.

If your Amazon packages take a few extra days this month, you may not be the only one feeling the burn!

Have a great day.

-The Gilman Deters Team

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