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2021 April Outlook

ETF Driven Strategy

Brian Rauscher

Head of Global Portfolio Strategy & Asset Allocation

Brian Rauscher

Brian Rauscher is a Managing Director and Head of Global Portfolio Strategy and Asset Allocation at FSInsight. He joined Robert W. Baird & Co. as Chief Portfolio Strategist in 2012 after 15 years on Wall Street. He has also worked on the buy side as the U.S. Equity Strategist at Fortress Investment Group on the Liquid Macro Fund. From 2004-2009, Rauscher was at Brown Brothers Harriman as the Director of Portfolio Strategy and Director of Research. Prior to that, he worked for five years as an investment strategist on the team of Wall Street legend Byron Wien, at Morgan Stanley.

April Outlook

Following the equity market decline that occurred during 1Q20 as a result of COVID and the lockdowns of economies all over the world, the S&P 500 has now posted its fourth consecutive positive return quarter as 1Q21 has come to an end. The impressive rally has been one that fits the classic Wall Street mantra of “Climbing the Wall of Worry”. With the overall market being up roughly 80% from its March 23rd, 2020 low and all sectors having posted price returns greater than 39%, there has been a lot of dispersion in sector performance.

Indeed, the top six sectors (Materials, Energy, Industrials, Financials, Tech, and CD) are all up nearly 90% while the bottom five (Comm Serv, HC, Real Estate Utilities, and Staples) are only up on average 53%. Hence, there has been quite an opportunity for investors to beat the benchmark S&P 500 by actively managing their sector allocations instead of just buying and holding S&P 500 index fund.

We at FSI with our disciplined data driven approaches to investing firmly believe based on our research that active management of portfolios can beat passive strategies over time. It may not be easy and everyone may not be able to achieve this, but our work suggests that it is clearly obtainable. However, it does take discipline and patience.

With this being said, it has been our expectation that 1Q21 was going to bumpy as we laid out in our outlook publication in January. And thus far, 2021 has been anything but smooth sailing. How are investors expected to deal with such a difficult environment? We continue to make the case that a disciplined process driven approach should help investors avoid being overly impacted by the constant noise from news headlines and emotional responses to day to day volatility.

Importantly, our proprietary methodology still recommends that investors should remain focused on the bigger picture and what will likely drive the U.S. equity markets for the remainder of the year and not only for the next several weeks, which is being driven by a robust earnings revisions backdrop. From a macro perspective, it has been our view that a major corporate profits recovery is slowly occurring, and the continuation of accommodative monetary and fiscal policies will remain in place. Our bottom line is our research process remains bullish and we are still advising investors to view dips and tactically weak price periods as buying opportunities.

Following the equity market decline that occurred during 1Q20 as a result of COVID and the lockdowns of economies all over the world, the S&P 500 has now posted its fourth consecutive positive return quarter as 1Q21 has come to an end. The impressive rally has been one that fits the classic Wall Street mantra of “Climbing the Wall of Worry”. With the overall market being up roughly 80% from its March 23rd, 2020 low and all sectors having posted price returns greater than 39%, there has been a lot of dispersion in sector performance.

Indeed, the top six sectors (Materials, Energy, Industrials, Financials, Tech, and CD) are all up nearly 90% while the bottom five (Comm Serv, HC, Real Estate Utilities, and Staples) are only up on average 53%. Hence, there has been quite an opportunity for investors to beat the benchmark S&P 500 by actively managing their sector allocations instead of just buying and holding S&P 500 index fund.

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