Our net weighted average return in 2020 was +18.23%. Since 2015, we have generated a net weighted average return of +54.39%.
2020 was a challenging year. We were forced to navigate an all-out panic in financial markets while weighing the staggering human costs of the Covid-19 pandemic. Shortly after what turned out to be the market lows of the year in March we wrote the following:
“The most significant reasons as to why markets have rebounded are 1) the massive rescue package passed by the US Congress, and 2) the massive balance sheet expansion by the Federal Reserve. The amount of money with which the richest country in the world is ready to attack this crisis is without comparison in the history of the world. And what you learn in capital markets is that you don’t fight against the guys that make the bullets.”
Accordingly, we inferred that:
”The second level implication of low interest rates and massive monetary stimulus is that it lowers the discount rate on risk assets, which means that quality risk assets will ultimately trade at higher valuation multiples than before this crisis.”
Here is how the S&P 500 index performed after our commentary:
Looking back, our thesis worked out far more powerfully than we could have possibly hoped at the time. Yes, we could have theoretically been even more aggressive in our positioning, but managing money requires humility and room for error.
One theme that we had been researching before the Covid-19 panic was the ascent of green energy and the massive waves of investment that will be forthcoming in the future. During the market panic and the economic fallout caused by Covid-19, we realized that governments would be forced to enact aggressive fiscal spending and that green energy investments would benefit significantly.
My colleague Pēteris put in countless hours of effort researching the companies that might benefit from this generational trend, and dove deep into the history of energy and civilization so that we could apply an appropriate sense of historical context to the scale of the planned investments. The results are staggering, and our clients have profited significantly from his analysis and our resulting investments in this sector. Here is a link to his article in Forbes Latvia.
These days many asset managers speak of relative asset allocations and factor performance. Certainly, these are important and relevant themes in asset management, but there is no substitute for good ideas and the conviction to see them through.
A month ago, we published our ‘Strategy 2025’ commentary where we outlined the industries and trends that we believe will be ascendant for the foreseeable future:
- Green Energy and Infrastructure
- Biotechnology & Healthcare
- Digitization and Cloud Computing
- Monetary Debasement and Negative Real Interest Rates
Over the course of the next year we will provide more commentary about trends and opportunities in these sectors.
2020 was a wild ride, but its second level effects will be no less impactful in shaping our future. Our responsibility to our clients is to recognize and capitalize on these trends to protect and grow their financial assets.
We have no doubt that 2021 will be an interesting year. Our unwavering goal is to make sure it is profitable for our clients.
On behalf of our client portfolio management team, I thank you for your trust and support!