Extraordinary is an apt, though perhaps too kind, word for 2020. I’m sure we all could come up with a few choice words to describe the past twelve months. It certainly wasn’t ordinary and it had plenty of “extra”, so I guess we’ll go with that one for now. Extraordinary is also a good description for portfolio returns this year and we’ll share our thoughts on the market environment here soon. But first things first, we must recognize the most extraordinary thing about this year at Tschetter Group… you.
It’s always a privilege to walk through life with clients and friends. But especially this year. Despite the necessary physical distance, we’ve had countless opportunities to connect. We’ve seen courage and strength in the face of hardship; creativity and determination in forging new paths forward when old ones got blocked. We recognize it’s been a difficult year for many in our communities — and we’ve also watched many of you step forward with generosity and care for others. In fact, one of the many highlights for us in 2020 was helping clients invest and give through family foundations and donor advised funds.
All that to say thank you for your encouragement and companionship through this extraordinary year.
Turning to the market, this year was a perfect example of why we think it best to stay committed to a long-term disciplined approach. With the significant curveball of COVID-19, this year defied any attempts at short-term prediction and prognostication. From a business and economic perspective, it was one of the worst years on record and yet it ended up being among the best for stock market returns. As the global pandemic spread in the opening months of the year, the negative impact on business and economic activity was unprecedented and breathtaking. The stock market dove over 30% lower in a matter of weeks from late February to the low on March 23rd. Investor panic briefly emerged and there were plenty of reasons for fear and concern. At times like these it’s tempting to bail, but it would’ve kept us from realizing an incredible recovery to new all-time market highs by the end of the year. And we’d note that this market recovery came even as the business and economic landscape remained challenged and uncertain.
In a very short period of time we witnessed some industries completely upended while others boomed with opportunities to meet the changing needs of consumers and businesses in response to the pandemic. Rapid adoption of technology needed to work, play, and shop from home accelerated the digital transformation already underway. We did our best to reposition stock portfolios for new risks and opportunities given new economic and market realities.
A dramatic and unprecedented U.S. fiscal and monetary policy response with the CARES Act, a return to near zero interest rate policy, and other measures taken by the Federal Reserve proved a powerful force for bringing confidence back to the market even as economic recovery has been uneven. The return of ultra low rates also presented a renewed challenge to finding returns in the bond market and we’ve made adjustments to our strategy for fixed income portfolios in response.
Finally, the year saw its share of social and political change, providing an “extra” layer to this already extraordinary year, culminating in a contentious presidential election, a new administration, and a shift in in the balance of power in Congress. We knew the volume in the media would be turned up loud and we’d have an opportunity to keep our eyes on the horizon rather than get too caught up in the noise.
Whew! An extraordinary year indeed.
We maintain a cautious optimism as we kick off 2021. Clearly, flipping the calendar to a new year doesn’t magically erase the lingering uncertainties introduced in 2020. We do see a number of potential near-term warning signals—namely lofty valuations and some examples of irrationally exuberant investor behavior—that the market might be ahead of itself. And yet the approval and rollout of vaccines represents a very real hope that an end to the pandemic may be coming into view. And as we’ve said before, even in periods where overall market returns may be challenged we believe in human creativity to find new paths for growth and progress. As always, we’ll stay alert and look to position our portfolios in a targeted set of investments that appropriately balance the opportunity for growth with protection against risk.
Specifically, we see much more reasonable valuations in areas of the economy that have been more negatively impacted by the pandemic. We want to maintain this “value” exposure while balancing it with targeted exposure to technology and other areas like health care innovation, where we see disruptive growth opportunities emerging. The impressive feat of producing a viable COVID vaccine in under a year when in the past the development of a vaccine may have taken ten to twenty years is a striking example of how advances in science and computing are changing the game. We’re also introducing an investment in global real estate as a bond alternative for clients who can afford to sacrifice some liquidity. Finally, we have cash in managed portfolios and stand ready to capitalize on any opportunities that emerge in potential market turbulence.
In summary, we acknowledge that we enter a new year with many of the difficulties, challenges, and uncertainties presented by the last. And yet we’re pleased to see portfolios have performed well despite the many headwinds and we remain optimistic and hopeful for the future. We’ve grown our team with some wonderful new professionals this year and we’ve never been more energized in our mission to give optimism about life and money.
Our biggest hope for 2021 and beyond is for your thriving. We enjoy the process of helping clients discover and get focused on what matters to them with the goal of learning how we can best be advocates for their flourishing. We’re committed to keep getting better for you and welcome your feedback along the way. Finally, if you know of anyone who might benefit from our approach, please let us know. We’d be happy to help.
Cheers to a new year – grateful to be in it with you!