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Weiss Alternative Multi-Strategy: Quarterly Update
The following is an excerpt from our Q1 update for the Weiss Alternative Multi-Strategy Fund, which provides daily liquidity while seeking to deliver market neutral exposure to the stock market with growth and defensive overlays that enhance diversification.
The velocity of market adaptation and rotation remained high in Q1. The Georgia Senate runoff accelerated expectations for more stimulus checks and introduced the prospect of a more fulsome handoff from monetary to fiscal stimulus via infrastructure and social programs made possible by a Democratic-controlled senate. Relative even to November’s original election and vaccine news, this fueled a shift in forecasts to even faster growth and inflation. These expectations benefitted the stock market, which continued its strength in 2020 with even higher returns. The S&P500 Index posted its fourth consecutive quarter of gains greater than or equal to 6%. The cumulative gains during these four quarters was over 56%, the third-highest four-quarter return since the Great Depression.
However, the bond market was the major story in the first quarter of 2021 despite outsized stock market returns. As a result of increasing forecasts for high GDP and inflation, we began to see interest rates rise across the fixed income universe in the middle of February. This rise in yields led to the worst quarterly performance for Investment Grade bond indices since the third quarter of 2008 after Lehman. Back in 2008, losses were driven by widening credit spreads as fears of default rose. This time, losses were related to the rise in interest rates on the back of inflation forecasts. Down 3.37%, the Bloomberg Barclays US Aggregate Bond Index (“Agg Index”) dropped the most in a quarter dating back to1981, the year Paul Volcker raised the Fed Funds rate to 20% in order to combat inflation. Prior to this first quarter of 2021, the Agg Index increased for 10 consecutive quarters. In fact, only 6 of the last 160 quarters dating back to1981 were down more than 2.00% in a single quarter, making this a historic decline for fixed income investors.
Rising GDP and higher inflation estimates were accompanied by more commodity strength inQ1. This same shift in investor sentiment also had an impact within the equity markets, leading to the best quarter for value stocks, as measured by the Bloomberg Pure Value Index. Value posted its best quarter since 2001, when a similar decline marked the end of the dot.com bubble. Relatedly, the shift to value weighed on growth stocks and led the Bloomberg Pure Growth Index to have its worst quarter since the third quarter of 2008 during the Great Financial Crisis.
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