#Articles — 13.04.2021

Flash: Performance review first quarter 2021

Guy ERTZ, Chief Investment Advisor

Vaccines, recovery and reflation

At a glance

  • The vaccination progress worldwide brought back hope for markets over Q1.
  • Equity Markets are still on an upward trend with very good Eurozone performance this year after the slow recovery of 2020.
  • Bonds suffered in general in 1Q21 as bond yields rose sharply. High Yield Bonds is the only main category with positive returns in Q1 both in US and Europe. Financial EU Corporate Bonds are the top performers.
  • In currency markets, the key trend is the strengthening of the US dollar after a year of weakness.
  • Energy is strong in Q1 thanks to the Suez canal temporary shutdown and industrial metals benefitted from the new super cycle. Cyclical commodities, in particular those of commodity exporting countries also did very well
  • Alternative UCITS are coming back with positive performances in early 2021. The Long-Short Equity strategy recording the best performance over Q1. Real estate recovered in Emerging Markets while Eurozone REITs remain in negative territory. United States REITS performed well.


Equity markets

On a global sight, the MSCI World US$ had a strong performance over Q1 with +4.5%. The positive global outlook regarding the pandemic and the vaccination progress pushed the index higher.

In the US, we saw strong performances over Q1 with the S&P500 up 5.8%. The rally was weaker for the NASDAQ with 2.8%. Expectations of higher taxation, regulation and risks of higher long-term interest rates weighed on Mega-Cap Tech.

In Europe, expectations of a strong economic rebound later this year help equity indices to recover. The STOXX600 (€) is up 7.7% while some country indices are outperforming with the CAC40 rallying +9.3% and the DAX30 +9.4%. In the UK, we see a weaker rebound with +3.9%.

In the Emerging Markets, the performance is contrasted due to the management of the pandemic in some countries. The MSCI EM ($) recorded a more modest performance of +1.95% with the MSCI Latin America ($) showing a negative -6.1% performance still pulled down by Brazil where the pandemic is a still a major issue.

Focusing on Asia, the MSCI EM Asia ($) has been rising slowly after last year’s outperformance with +1.9% over Q1 this year. This weaker performance can be explained by China’s equity market with the CSI300 losing -3.13%.

This underperformance can be explained by the rotation into other lagging equity markets and renewed trade tensions. The Nikkei 225 index and the KOSPI 11 index, on the other hand, performed well, delivering +6.3% and 6.5% respectively.

As a comparison between the EU and the US equity markets, the MSCI North America is still outperforming the MSCI Europe by about 1.7%. The MSCI NA is ending 1Q21 with a good 5.3% rise.

Bonds markets

Fixed Income markets declined over 1Q21 after the whooping 2020 returns. The Bloomberg Barclays Global Aggregate Index ($), which comprises sovereign and corporate bonds in both developed and emerging mar-kets, lost 4.5%.

Central banks were still dovish due to the Covid-19 cri-sis but this did not stop bond yields from rising. Long-term interest rates increased sharply in early 2021: +83bps for the US 10-year yield and +28bps for the German 10-year yield. Hence, government bonds rec-orded negative performances in 1Q: -4.1% in the US, -2.3% in both the eurozone and Germany and -2.8% in France. Periphery spreads tightened during the period thanks to the ECB, so periphery bonds outperformed. They did however record negative returns with -0.9% in both Italy and Greece, -1.3% in Portugal and -2.2% in Spain.

In the corporate space, US Investment Grade bonds were particularly hit by the sharp rise in US long-term rates because of their long duration. They dropped by 4.6%. Its peer in the eurozone lost 0.7%. Financial bonds in the eurozone outperformed (+1.9%) thanks to the reflation trades. High Yield bonds managed to post positive re-turns thanks to their relatively short duration and the improvement of the economic outlook that pushed the expected default rate lower. They gained 1.6% in the eurozone and 0.9% in the US.  

Emerging bonds in hard currency showed negative re-turns, -2.4% for government bonds and -1.4% for corpo-rate bonds. Returns on emerging bonds in local curren-cy were mixed, up 0.2% in EUR terms and down 3.7% in USD terms as the dollar appreciated strongly against most emerging currencies in 1Q21.

Forex markets

The dollar has been strengthening against the euro over the first quarter with +4.1%. The positive outlook regarding the pandemic and the stimulus package have led to higher expectations regarding economic growth and pushed US Treasury yields higher. Given the strong but temporary contrast between Europe and the US regarding the covid-19 situation, the euro should recover quickly as vaccines allow the European economies to emerge from the most recent string of lockdowns measures.

The Swiss Franc weakened against the euro despite renewed lockdowns in the Eurozone (-2.2%). We believe that the national bank measures and the global outlook offer ground for the euro to keep appreciating against the Swiss Currency.

The Japanese Yen has depreciated by -6.7% against the dollar over Q1. The steepening of the US Treasury curve and upward revisions in US growth have propelled the USDJPY (value of one dollar) to very high levels. At its March 19th meeting, the Bank of Japan (BoJ) confirmed the expansion of its 10y yield curve control target range to +/-0.25%. We expect the BoJ to leave its stance unchanged for the foreseeable future.

The Chinese currency was down -0.4% against the USD. The move up in US treasury yields during the last few weeks of Q1 has eroded the yield advantage of Chinese government bonds over the US ones. The decline in business surveys (PMIs) reflects the slowing underlying momentum in China relative to the US. We expect the central bank to continue focusing on stabilizing debt levels and financial risk control.


Gold has been underperforming due to expectations of higher US bond yields, especially real yields. The USD strength and a strong appetite for risk assets on the back of improving growth outlook also played a role. Gold is down about -10%. After reaching $71 in March, Brent prices dropped on new lockdown measures in Europe before rebounding due to the Suez Canal tempo-rary shutdown. Brent is up 22.7% in 1Q21. Regarding base metals, Chinese demand, fiscal stimuli around the world; the focus on infrastructure spending and the energy transition theme are key factors to explain the recent rise. S&P GSCI Index has been rallying +13.6%. However, Silver was down -7.5% over Q1. Energy is the top performer of the first quarter with +24%.

Alternative investments

All major hedge funds strategies are up in 1Q21. The Long-short equity is the most performant strategy with +3% in Q1. The strong performance in equity and credit strategies is partly due to the positive progress of the vaccination plan. Long-Short equity benefitted from net long exposure while Global-Macro generally gained from currency trends, and to a lesser extent, from curve steepeners in the US. Composite & Event Driven also did well with a positive performance around 2%.

Real Estate

Prices of commercial Real Estate Investment Trusts (REITs) benefited from the risk-on environment in Q1. The Eurozone delivered the worst performance with -3.1% due to slow vaccination. The Japanese region was the top performer of our sample with +15.5%. On a glob-al sight, the asset class recorded a +6% performance over Q1 in USD. Asia Pacific and UK were back on an upward trend with +6.2% and +3.2% respectively.