The Anfield Investment Committee took on a mid-year review of our capital market expectations (CME’s) from earlier in 2021. As we have mentioned in the past, we construct portfolios built for a variety of time horizons—our fixed income portfolios are generally designed with a 1-3 year time horizon, our balanced portfolios are constructed with a 3-5+ year time horizon in mind, and our most aggressive portfolios are typically constructed with a 7+ year time horizon.
Similar to our original analysis earlier in the year, due to the extremely uncertain environment we find ourselves in currently, the team has decided to keep our forecasts short in duration vs. the forecasts given in prior years, which were for a 3-5 year annualized returns for equity sectors (e.g. US Large Cap, Emerging Markets, etc.), while continuing to provide one year forecasts for various fixed income and alternative markets (e.g. real estate).
Amongst the major asset classes, equities (broadly speaking) have been stronger than we originally forecasted. US Large and Small Cap stocks have both returned more than 10% midway through the year (which for any full year could be considered a success!) On the international front, Emerging Markets have struggled to keep pace with their International-Developed Market brethren, as news out of China continues to roil the markets and have major influence on returns abroad. On the fixed income front, we noted in our last forecast that markets in this realm looked to be strained in 2021, and that has exactly been the case. The broad bond market (as measured by the Bloomberg Barclays US Aggregate Index) has been flat/negative on the year, while domestic interest rates continue to be more volatile than we have expected. We continue to believe that US High Yield will end 2021 as the top performing fixed income sector, where the potential returns are in the mid-single digits, while Treasuries could still have a negative year despite the April through July rally we experienced.
In summary, the Anfield team still maintains that 2021 will wind up being a strong year for the equity markets and a difficult year for fixed income markets—with the US Agg down 0.87% YTD through July 15, it is quite possible the index does not end the year in the green. With the resurgence of Covid-19 in various parts of the country, the potential for completion of infrastructure bills (hard and soft) and approval this Fall, and the volatility in the fixed income markets, we look for the remainder of 2021 to be driven by headlines and remain volatile.
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