One year after the launch of anti-Covid vaccines, financial markets have been willing to move beyond the pandemic while the economy has not. We see this with the disruptions among supply chains, particularity labor and commodity markets. The longest economic expansion in American history – 128 months – has been followed by the shortest recession – 2 months – and has registered the sharpest rebound ever measured. Inflation continues to be fed by supply shortages, labor costs, worker shortages, and consumers, who are responding to the changes imposed by the pandemic. In December, we maintained our twelve-month forecast of Growth (U.S. GDP greater than 2.5%) through the period while we continue to closely monitor the outlook for inflation.

The Chinese economy expanded 4.9% year-on-year in Q3 2021, down from 7.9% growth in the previous quarter, amid several headwinds including power shortages and supply chain bottlenecks.¹ China’s consumer price inflation accelerated to 2.3% in November from 1.5% a month earlier.² Exports from China increased by 22% to a record high in November.³

The Euro Area economy advanced 2.2% in the three months to September 2021. Household consumption accelerated while government expenditure slowed.⁴ The British economy advanced 1.3% in Q3, lower than the 5.5% growth rate in Q2.⁵ The annual inflation rate in the Euro Area increased to 4.9% in November from 4.1% in October. The biggest increase was seen in cost of energy (27.5%).⁶ The Euro Area seasonally adjusted unemployment rate edged down to 7.3% in October. Amongst the largest Euro Area economies, the highest jobless rates were recorded in Spain (14.5%), Italy (9.4%) and France (7.6%).⁷

The U.S. economy expanded an annualized 2.1% in Q3 2021. Personal consumption increased, mainly boosted by international travel, transportation services, and healthcare.⁸ Monthly inflation in the U.S. came in at 6.8% annualized in November. The indexes for gasoline (6.1%), shelter (0.5%), and food (0.7%) were among the larger contributors.⁹ The U.S. trade deficit with China decreased $3.2 billion to $28.3 billion. The gap with the EU also narrowed $2.1 billion to $16.6 billion but the deficit with Mexico widened $0.8 billion to $9.7 billion.¹⁰ The Canadian economy rebounded by 1.3% in Q3, underpinned by household spending and exports as pandemic restrictions were phased out.¹¹ Canada’s headline inflation rate remained at 4.7% in November, amid supply chain issues and low base year effects.¹² The unemployment rate in Canada fell to a new pandemic-low of 6.0% in November.¹³

It was not smooth sailing for U.S. equities in November, as concerns about the Omicron strain coupled with less-than-transitory inflation and accelerated tapering by the Fed upset markets during the last three days of the month. The S&P 500 posted a loss of 0.7%, outperforming the S&P Midcap 400 and the S&P Small Cap 600, which declined 2.9% and 2.3%, respectively. Canadian equities posted moderate losses with the S&P/TSX Composite down 1.6%. The European markets began November positively, but lockdowns and rising COVID caseloads spread across the continent towards the end of the month, before the twin challenges of a new virus strain and soaring core inflation pushed equities firmly into the red. The S&P Europe 350 finished with a loss of 2.5%. Nearly every country represented in the pan-continental benchmark contributed to the declines, except Switzerland. The S&P U.K. (GBP) was down 1.9%. The broad-based S&P Pan Asia BMI was down 3.8%. Most Asian regional fixed income indices advanced this month, led by the S&P/ASX Australian Government Bond Index, which gained 3% as investors steered towards the relative safety of government securities. Commodities fell heavily, led by a 20% decline in S&P GSCI Crude Oil on the back of fears that new restrictions on global travel may sap demand.

In December, we maintained our Asset Allocation across all models. Corporate earnings across all market caps were solid in Q3. U.S. fiscal spending that will fund local governments in the pending infrastructure bill supports our exposure to short-term treasuries and municipal bond exposure in the U.S. We believe that raising rates too early in 2022 during a transitory inflation environment will not occur for risk of causing a recession.

The global economic recovery is moving forward with limited slack. Against the backdrop of an incomplete recovery and a significant buildup of public sector debt, we have lowered our growth recovery expectations while maintaining our outlook to above 2.5% GDP growth in the U.S. over the next twelve-months. The changing picture of the economy comes with structural challenges to some sectors but eventually expects to lead to improved liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP Growth. October 18, 2021.

² Trading Economics. China Inflation. December 9, 2021.

³ Trading Economics. China Exports. December 9, 2021.

⁴ Trading Economics. Europe GDP. December 7, 2021.

⁵ Trading Economics. U.K. GDP. November 11, 2021.

⁶ Trading Economics. Europe Inflation. December 17, 2021.

⁷ Trading Economics. Europe Unemployment. December 2, 2021.

⁸ Trading Economics. U.S. GDP. November 24, 2021.

⁹ Trading Economics. U.S. Inflation. December 10, 2021.

¹⁰ Trading Economics. U.S. Trade. December 7, 2021.

¹¹ Trading Economics. Canada GDP. November 30, 2021.

¹² Trading Economics. Canada Inflation. December 15, 2021.

¹³ Trading Economics. Canada Unemployment. December 12, 2021.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. November 30, 2021. Index performance is based on total returns and expressed in the local currency of the index.

There has been mounting evidence that the pace of the global recovery has slowed. In many economies, it reflects increased consumer caution about high virus cases and shortages limiting how fast economies can grow. The shortage of semiconductors and the current logjam that is taking place at ports along the west coast of the U.S. has had a big impact on the recovery in the U.S. and their trading partners. The root of the issue boils down to the pandemic disrupting the “traditional” flow of activity — causing a supply and demand imbalance. The most likely outcome is a weakening macro backdrop that will weigh on the longer-end of the yield curve. In September we maintained our twelve-month forward forecast of Growth (U.S. GDP greater than 2.5%) through the period.

The Chinese economy expanded 4.9% year-on-year in the third quarter of 2021, easing sharply from a 7.9% growth in the previous period.¹ It was the slowest pace of expansion since the third quarter last year. China’s corporate debt has risen to US$27 trillion, nearly one third of the world’s total corporate debt and 159% of China’s GDP. The construction and engineering sectors (around 45% of the debt) could trigger contagion effects on the global economy.² The European economy expanded 2.2% in the second quarter of 2021 while the British economy expanded 5.5%.³ The Eurozone annual inflation rate was confirmed at 3.4% in September 2021, the highest rate since before the global financial crisis in September 2008. Energy prices were responsible for almost half of the overall year-on-year inflation reading, rising by 17.6% in September after a 15.4% advance in August.⁴ Unemployment in Europe held at 7.5% while in the U.K. it was 4.5% in August, the last reported month.⁵

The final U.S. Q2 GDP growth rate came in at 6.7%. The annual inflation rate in the U.S. edged up to a 13-year high of 5.4% in September from 5.3% in August.⁶ The U.S. unemployment rate dropped to 4.8% in September 2021, from 5.2% in the previous month. It was the lowest rate since March 2020, as many people left the labor force and the negative effects of Hurricane Ida and the Delta variant’s summer spike started to fade. The jobless rate remained well above the pre-crisis level of about 3.5% due to ongoing labor shortages.⁷  The Canadian economy unexpectedly shrank 0.3% in Q2 2021, ending three straight quarters of expansion mostly due to a decline in home resale activities and exports.⁸ The annual inflation rate in Canada went up to 4.4% in September of 2021 from 4.1% in August.⁹ The unemployment rate in Canada declined for the fourth straight month to 6.9% in September of 2021 from 7.1% in August.¹⁰

Mounting fears of inflation, an ongoing Congressional budget impasse, and anticipation of a reduction in Fed liquidity provisions all weighed on U.S. equities in September. For the third quarter, the S&P 500 posted a gain of 0.6%, while the S&P MidCap 400 and the S&P SmallCap 600 fell 1.8% and 2.8%, respectively. Despite losses in September of 2.2%, Canadian equities managed to post slight gains in Q3, with the S&P/TSX Composite up 0.2%. The blue-chip S&P Europe 350 managed a 0.9% gain for the third quarter after declining 2.9% in September. U.K. equities bucked the trend, escaping September’s downturn and rising 2.1% in Q3. The Netherlands had the largest contribution (48bps) to the benchmark while Germany hurt the composite due to an uncertain outcome in government elections at the end of the quarter. The broad-based S&P Pan Asia BMI shed 1.4% in September, leaving it with a loss of 3.0% for the quarter. Japan was the top-performing Asian index in September, with the S&P/TOPIX 150 up 4.7% for the month. Hong Kong and Korea lagged, as an ongoing regulatory crackdown in China and Evergrande’s widely publicized troubles soured investors.

In October we maintained our asset allocation for all portfolio models. The added exposure to Canadian equities in September worked well as the Canadian market, led by higher energy prices, experienced a strong month. U.S. fiscal spending that will fund local governments in the pending infrastructure bill supports our exposure to short-term treasuries and municipal bond exposure in the U.S. We continue to include gold in the asset allocation as a portfolio stabilizer during volatile equity markets.

Our outlook hinges on whether the sources of recent disappointment are transitory amid several headwinds including power shortages, supply chain bottlenecks, a persistent property bubble in China, and COVID-19 outbreaks. Shortages of workers in many economies are also weighing on the growth for the rest of the year. The changing picture of the economy comes with structural changes that will challenge some sectors while at the same time, the reopening is expected to lead to improved liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP. October 18, 2021.

² S&P DJ. “Can China Escape Its Corporate Debt Trap?”. October 19, 2021.

³ Trading Economics. Europe GDP. September 7, 2021.

⁴ Trading Economics. Europe Inflation Rate. October 20, 2021.

⁵ Trading Economics. Europe Unemployment Rate. September 30, 2021.

⁶ Trading Economics. U.S. Inflation Rate. October 13, 2021.

⁷ Trading Economics. U.S. Unemployment Rate. October 8, 2021.

⁸ Trading Economics. Canada GDP. August 31, 2021.

⁹ Trading Economics. Canada Inflation Rate. October 20, 2021.

¹⁰ Trading Economics. Canada Unemployment Rate. October 8, 2021.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. September 30, 2021. Index performance is based on total returns and expressed in the local currency of the index.

At the start of the year, inflation was widely expected to pick up as the base effects of a collapse in energy prices in the spring of 2020 began to show up in year-on-year inflation readings. The magnitude of the increase now appears to extend beyond those effects due to the ongoing rise in commodity prices, persistent and more severe bottlenecks in manufacturing supply chains, and jumps in the price of certain items of the Consumer Price Index, such as used cars, travel, and accommodation. Looking ahead, most of these inflationary impulses are likely to fade over the next twelve months as supply bottlenecks ease. In addition, there is a sizeable pool of unemployed workers, unlike in most previous inflationary episodes, even if there is no precedent for the kind of shock the U.S. and other economies have undergone over the past 18 months.

In mid-July, our growth concerns were largely driven by the delta variant. Fortunately, the delta wave is not generating a high level of hospitalizations or fatalities to force the reintroduction of lockdowns in major Western economies. Currently, Chinese growth and regulatory risks and Fed tapering concerns in addition to retail sales contractions in the U.S., China, and the U.K. are our primary risk concerns. On the geopolitical front, the chaotic U.S. withdrawal from Afghanistan is ongoing. In August, we updated our twelve-month forecast to reflect our view that Stagnation is no longer a risk. Our current twelve-month outlook is for Growth (U.S. GDP greater than 2.5%) through the period.

China has centralized political power to move rapidly on reforms, creating new structural problems while antagonizing foreign nations. The Chinese economy advanced 7.9% year-on-year in Q2 of 2021. A slowdown in factory activity, higher raw material costs, and new COVID-19 outbreaks in some regions all weighed on the recovery momentum.¹ The Eurozone quarterly economic growth was confirmed at 2.0% in 2021 Q2, following two consecutive periods of contraction. Among the bloc’s largest economies, Germany, France, Spain, and the Netherlands returned to growth.² The Euro Area seasonally adjusted unemployment rate edged down to 7.7% in June. The U.K. unemployment rate fell to 4.7% in Q2 although the rate remained 0.8 percentage points higher than before the pandemic.³

The U.S. economy advanced an annualized 6.5% in Q2 2021. Personal consumption expenditures grew 11.8% as vaccinated Americans traveled and engaged in activities that were restricted before.⁴ U.S. CPI stood at 5.4% in July 2021, unchanged from previous month’s 13-year high.⁵ The U.S. unemployment rate was 5.4% in July. These levels remain well above their levels prior to the coronavirus pandemic (3.5% in February 2020).⁶ Fed officials expressed a range of views on the appropriate pace of tapering asset purchases, but most noted that it could be appropriate to start reducing the pace of asset purchases this year, provided that the economy was to evolve broadly. The Fed left the target range for its federal funds rate unchanged at 0-0.25% in July.⁷ In Canada, the annual inflation rate increased to 3.7% in July of 2021 from 3.1% in June.⁸ The unemployment rate fell to 7.5% in July from 7.8% in June.⁹ The Bank of Canada left its key overnight rate unchanged at 0.25% on July 14th but adjusted the quantitative easing program to a target pace of $2bn from $3bn per week.

U.S. equities generally ended  July in positive territory, with the S&P 500 posting a gain of 2.4%. S&P MidCap 400 posted slight gains of 0.4%, while the S&P SmallCap 600 fell 2.4%. The S&P/TSX Composite was up 0.8%. Asian equities declined, with the S&P Pan Asia BMI down 4.1%, led by heavy losses in China, as a result of Beijing’s clampdown on tech companies. The S&P Europe 350 continued to climb, marking new all-time highs, as it rode to a total return of 1.8%. With the U.K. lagging this month, Switzerland, France, and the Netherlands lead; contributing more than half of S&P Europe 350’s returns.

In August, we maintained our asset allocation from July for all portfolio models. The U.S. economy is slowly recovering. Fiscal spending that funds local governments supports our exposure to treasuries and municipal bond exposure in the U.S. The yield curve flattened in July. We continue to include gold in the asset allocation as a portfolio stabilizer during volatile equity markets.

Our outlook hinges on whether the sources of recent disappointment related to the Delta wave, China policy, and global supply constraints are transitory.  Concerns remain about the global spread of the pandemic and an unbalanced recovery domestically. The changing picture of the economy comes with structural changes that will challenge some sectors. The economic reopening and the global stimulus that is underway will lead to improved household liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP, National Bureau of Statistics of China. July 15, 2021.

² Trading Economics. Europe GDP. August 17, 2021.

³ Trading Economics. Europe Unemployment, Office for National Statistics. July 30, 2021.

⁴ Trading Economics. U.S. GDP, U.S. Bureau of Economic Analysis. August 26, 2021.

⁵ Trading Economics. U.S. Inflation,  U.S. Bureau of Labor Statistics. August 11, 2021.

⁶ Trading Economics. U.S. Unemployment, U.S. Bureau of Labor Statistics. August 6, 2021.

⁷ Trading Economics. U.S. Federal Reserve. July 28, 2021.

⁸ Trading Economics. Canada Inflation, Statistics Canada. August 18, 2021.

⁹ Trading Economics. Canada Unemployment. August 6, 2021.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 30, 2021. Index performance is based on total returns and expressed in the local currency of the index.

The macroeconomic environment was a key focus in May. Massive fiscal support has been the glue that has held the economy together but the re-opening contribution to growth is for the most part completed. The question of whether the change in consumer prices is transitory or a regime shift will determine the sustainability of economic growth. We have maintained our economic outlook of three months of Growth followed by Stagnation for the remainder of our twelve-month forecast horizon.

China’s economic data came in weaker than expected in April. A fall in retail sales and industrial production contributed to the weaker result. China’s urban unemployment rate edged down to 5% in May 2021, the lowest in two years.¹

The Euro Area economy shrank 0.3% in the first three months of 2021. Among the bloc’s largest economies, Germany, France, Spain, and the Netherlands fell back into contraction territory, while Italy’s economy posted modest growth despite the restrictions.² The consumer price inflation rate in the Euro Area was confirmed at 2% year-on-year in May 2021, the highest since October 2018, due to the low base year. Upward pressure came from energy (13.1% versus 10.4% in April).³ Amongst the largest Euro Area economies, the highest jobless rates were recorded in Spain (15.4%), Italy (10.7%) and France (7.3%).⁴ Britain’s job market showed signs of recovery. In the three months to April, it stood at 4.7%, down from 5.1% at the end of 2020.⁵

Thanks to an extremely accommodative policy mix, the U.S. economy continues to recover, growing by an annualized 6.4% in the first quarter.⁶ After a decade of disappointment, U.S. productivity growth is on the rise again. Time will tell if this is a structural upshift that will be sustained. The U.S. unemployment rate dropped to 5.8% in May 2021, the lowest since March 2020.⁷ The annual inflation rate in the U.S. accelerated to 5% in May of 2021 from 4.2% in April, the highest reading since August of 2008 amid low base effects from last year, rising consumer demand as the economy reopens, soaring commodity prices, supply constraints, and higher wages as companies grapple with a labor shortage. This inflation is uneven with the 20% that is COVID-19-skewed, up at a 22% annual rate over the past six months, while the other 80% that represents the part of the economy not being affected has seen its CPI rise at a 1.6% annual rate and was up 0.15% in May.⁸ At the June meeting, The Federal Reserve held its target range for interest rates steady at 0% to 0.25% but said it will probably increase it by the end of 2023 to 0.6%. The hike will come sooner than the Fed had expected in March, mostly because of a faster pandemic recovery, vaccination uptake, and rising domestic inflation.⁹

Canadian GDP is estimated to have gone down in April, the first decline since the spring of last year due to the third wave lockdown. Canada’s annual inflation rate quickened to 3.6% in May of 2021 from 3.4% in April. The Canadian dollar has appreciated to above 83 US cents, up from 78 cents in January. The Bank of Canada has attributed much of this increase to improving fundamentals like rising commodity prices.¹⁰

U.S. equities ended May on a modest note as inflation concerns dominated the headlines. The S&P 500 posted a gain of 0.7%, the S&P MidCap 400 posted 0.2% and S&P SmallCap 600 posted 2.1%. Canadian equities gained in May, with the S&P/TSX Composite up 3.4%. The S&P Europe 350 added 2.7%, making several new all-time highs. The Australian benchmark, S&P/ASX 200, closed the month up 2.3%. Most Asian single-country indices posted gains in May, including the S&P China 500 up 1.3%, and the S&P Korea BMI, up 0.7%, while the S&P Singapore BMI was down 0.6%.

In June, we maintained the asset allocation we established in May. Equity exposure across all models reflects our view that markets are looking through the uncertainty of the pandemic and towards the resumption of more normal life once populations are vaccinated. The recent shift in the bond-equity correlation into positive territory appears to be a function of the persistency in inflation. Fiscal spending that funds local governments supports our exposure to treasuries and municipal bond exposure in the U.S. We continue to include exposure to gold as a portfolio stabilizer.

The economic reopening and the global stimulus that is underway will lead to improved household liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China Retail Sales, National Bureau of Statistics of China. June 9, 2021.

² Trading Economics. Euro GDP, EUROSTAT. June 8, 2021.

³ Trading Economics. Euro Area Inflation. June 17, 2021.

⁴ Trading Economics. Euro Unemployment Rate. June 1, 2021.

⁵ Trading Economics. U.K. Unemployment Rate. June 15, 2021.

⁶ Trading Economics. U.S. GDP. June 4, 2021.

⁷ Trading Economics. U.S. Unemployment Rate, Bureau of Labor Statistics. June 4, 2021.

⁸ Trading Economics. U.S. Inflation Rate. June 10, 2021.

⁹ The Federal Reserve. FOMC Statement. June 16, 2021.

¹⁰ Trading Economics. US CAD Exchange Rate, Statistics Canada. June 16, 2021.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. May 31, 2021. Index performance is based on total returns and expressed in the local currency of the index.

The tug-of-war between the virus and the global immunization effort intensified in March. The focus now will be on economic reopening. Every recession is different and the events that led to the great recession of 2020 were unique, as has been the response from governments and central banks. Through large-scale fiscal transfers and central bank actions in many economies, households and businesses have been supported through the crisis and are in a position to emerge with their balance sheets largely intact. Our twelve-month forward outlook remains three months of Growth, followed by nine months of Stagnation, as we have seen evidence of a stronger short-term recovery rebound but a lingering longer-term impact on employment and output.

Emerging Market Asia is being buffeted by a number of forces including the policy-induced downshift in China and the sustained pandemic drag. The Chinese economy advanced 18.3% year-on-year in the first quarter of 2021, accelerating sharply from a 6.5% growth in the fourth quarter of 2020.¹ Exports from China soared 30.6% year-on-year to USD 241.1 billion in March 2021, slowing from a record 154.9% growth in February. Among major trade partners, exports were up to the U.S. (53.3%), the EU (45.9%), and Australia (23.1%).²

The Eurozone economy shrank by 0.7% in the fourth quarter of 2020, following a record 12.5% expansion in the previous three-month period. Among the bloc’s largest economies, France, Italy, and the Netherlands contracted in the fourth quarter, while GDP growth in Germany and Spain slowed sharply.³ For the year 2020 as a whole, GDP fell by 6.6%.⁴ The U.K. remains among the global leaders in vaccine distribution with nearly half of its population having received at least one dose and daily vaccinations reaching 0.8 per 100 population in late March. The consumer price inflation rate in the Euro Area was confirmed at 1.3% year-on-year in March 2021, the highest since January 2020.⁵

The U.S. is vaccinating its population and reopening its economy, while the fiscal response has also been more expansionary. The American Rescue Plan of $350 billion will be followed with higher tax rates, shifting interest towards more favorable asset classes including tax exempt municipal bonds. The U.S. economy expanded an annualized 4.3% in Q4 2020 but shrank 3.5% for the year.⁶ The U.S. dollar advanced and capped its first quarterly gain in a year, thanks to the U.S. growth dynamic versus its global peers. The Canadian economy expanded 2.3% in the last three months of 2020, following a record 8.9% growth in the previous period.⁷ Canada’s trade surplus narrowed to CAD1.04 billion in February of 2021 from a revised CAD1.21 billion in the previous month. Total exports decreased by 2.7% to CAD49.9 billion in February, a level 4.1% higher than that set in February 2020.⁸ On balance sheet policy, the Bank of Canada began its tapering at the end of April.

U.S. equities ended the first quarter of 2021 on a strong note, with the S&P 500 posting a gain of 6.2%. Smaller Caps outperformed, with the S&P Mid Cap 400 and the S&P SmallCap 600 up 13.5% and 18.2% for the quarter, respectively. Canadian equities posted strong gains in Q1, with the S&P/TSX up 8.1%. International performance was also positive. The S&P Europe 350 closed the first quarter of 2021 up 8.7%. The United Kingdom was responsible for 2.5% of the total while France was the second-largest contributor with 1.5%. Asian equities had a positive start to the year, with the S&P Pan Asia BMI up 2.7% in the first quarter. Early-2021 trends of rising government bond yields and strong equity markets continued in March, reflecting the brighter economic outlook and increased fiscal support, particularly in the U.S. In March, the MSCI All Country World Index gained 2.5%, led by the S&P 500 (4.2%) and the S&P/TSX (3.6%). International stocks also had a modest (1.8%) gain. By contrast, the MSCI emerging market benchmark shed 1.7%.

Equity exposure across all models reflects our view that markets are looking through the uncertainty of the pandemic and towards the resumption of more normal life once populations are vaccinated. In April, we maintained the asset allocation that we established in March. Fiscal spending that funds local governments supports our exposure to U.S. treasuries and municipal bond exposure in the U.S. We continue to include some exposure to gold as a portfolio stabilizer.

The economic reopening and the global stimulus that is underway will lead to improved household liquidity, a wealth effect from rising asset values and lower consumption, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP Growth. April 16, 2021.

² Trading Economics. China Trade: General Administration of Customs. April 13, 2021.

³ Trading Economics. Eurozone GDP Growth. March 9, 2021.

⁴ Trading Economics. Eurozone GDP Growth: EUROSTAT. March 9, 2021.

⁵ Trading Economics. Eurozone Inflation. March 16, 2021.

⁶ Trading Economics. U.S. GDP Growth. March 25, 2021.

⁷ Trading Economics. Canada GDP Growth. March 2, 2021.

⁸ Trading Economics. Canada Trade. April 7, 2021.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2021. Index performance is based on total returns and expressed in the local currency of the index.