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Second quarter 2021 presented investors with a broadly positive performance backdrop. Notably, in June, U.S. large cap growth strongly outperformed value, small cap underperformed large cap, interest rates declined, the U.S. dollar sharply appreciated, and incoming U.S. economic data began to slip versus sell-side estimates.
Market performance in the second quarter was broadly positive across most major asset classes and categories, with many themes resembling the pre-COVID backdrop, particularly related to domestic large cap growth’s strong performance. Inflationary concerns continued to remain at the forefront, as many realized inflation measures accelerated to multi-decade highs through the quarter and materially above the Federal Reserve’s 2% target.
May presented investors with broad-based gains across most major asset classes and categories, as the ongoing resumption of global economic activity appeared to have gathered pace and sent inflation rates higher in the process. Incoming economic data during the month suggested the sharpest annualized inflation rate increase in nearly 30 years.
The FEG Community Foundation Survey provides transparency into financial and enterprise trends facing community foundations today. Foundation leaders can use this as a benchmarking tool to support strategic decision-making. This year we had 110 participants from 35 states. Key themes and results from the survey are shared below on topics including investment model, asset allocation, performance, diverse asset managers, responsive investing, spending policy, fees, and investment committee structure.
Hear from FEG consultants Jeff Davis, Jeff Weisker, and Quincy Brown as they reveal financial and enterprise trends from across the community foundation field. They also address key themes and considerations for your organization from the FEG 2021 Community Foundation Survey.
Energy was one of the most negatively impacted sectors by the pandemic in 2020. By the end of the first quarter 2021, energy markets recovered and have led the market thus far in 2021. Notably, this surge is occurring at a time when many investors have abandoned energy following years of disappointing returns, along with a shift toward divesting in fossil fuels in favor of renewable energy. One trend that stands out across multiple segments of the investment landscape today is clean energy. The sector has experienced massive and unprecedented capital flows in both public and private markets—a trend which is being driven by a myriad of factors.
For the first time since the beginning of COVID-19 containment measures last spring, the headline unemployment rate nudged higher. The bigger story, however, is the sizable miss versus expectations on the payrolls front. The setback in labor market gains in April may ultimately prove to be a temporary stumble; it may alternatively foreshadow future friction and potentially limit economic growth potential returning to healthy, pre-COVID levels.
This week, markets received a jolt from inflation news. Specifically, annualized inflation hit 4.2%. This measure is U.S. Consumer Price Index (CPI) for all items on a year-over-year basis through April. Markets, aware of increasing demand and supply chain issues, were anticipating an increase at a not inconsequential, but more sedate, rate of 3.6%. Crossing the 4% threshold from last month’s 2.6% measure has immediately weighed on markets already on edge following last week’s disappointing jobs report.
Increased credibility and conviction in clean energy has resulted in an overwhelming array of options for investors to deploy capital. This FEG Insight frames the discussion around clean energy, providing a brief background and offering guidance for investors on how to make sense of the clean energy opportunity set. This publication also considers some of the overlooked aspects of the energy transition story and highlights the risk associated with capital flooding into the sector.
Broadly, most major asset classes and categories produced strongly positive returns in the first quarter—with the exception of high-quality bonds, which suffered amid a sharp rise in interest rates—with relative performance generally supporting domestic versus international sectors. Major global equity indices concluded the quarter at or near record high price levels, with similarly lofty readings across most commonly referenced valuation ratios.
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