Global Markets – 4Q20 Review
International stocks continued their upward momentum in the fourth quarter, with the MSCI EAFE Index gaining 16.1% in the last three months of 2020. The catalyst for the advance in equities was the positive COVID-19 vaccine results, which provided the market with the necessary visibility to shift the view from lockdowns and related social restrictions to one of recovery and normalization in the coming months. The strong 4Q return also moved the EAFE Index into positive territory for the year, with the EAFE posting a return of 7.8% for 2020.
Two notable rotations took place in the quarter: (1) the international markets outperformed their U.S. counterparts (i.e., the S&P 500 Index), and (2) value outperformed growth. There is some linkage between these two events. A contributing factor to the strong return for the U.S. markets has been a higher concentration of technology and related work-from-home (WFH) stocks. In contrast, asset-heavy physical economy (i.e., value) businesses incurred material disruptions in 2020, as reflected in their operating results (and stock prices). As economies begin to re-open, the market appears to be moving from ‘what has worked’ (i.e., growth) to ‘what should work’ (i.e., value) in the coming year. With value industries comprising a meaningful portion of the international developed benchmark and U.S. investors receiving an assist in the form of a weakening U.S. dollar, the return potential for non-U.S. stocks looks increasingly attractive.
Cambiar is similarly attempting to look ahead as it relates to portfolio positioning, while not trying to make an ‘all in’ call one way or the other. An improving economic backdrop will improve the finances of many locked-down businesses; that said, long-term challenges to business models and the capacity to generate economic returns in certain asset-intensive industries remain quite tangible, notwithstanding their recoveries in the fourth quarter. Our team continues to emphasize a balanced mix of businesses that include stable, all-weather franchises as well as companies that are poised to benefit from an acceleration in economic activity as conditions normalize over the course of 2021.
Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results, or performance may differ materially from that reflected or contemplated in such forward-looking statements. All information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable. As with any investments, there are risks to be considered. All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this commentary.
Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness. As with any investments, there are risks to be considered. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.