BCA Weekly Commentary 12/18/20: Reversion to the Mean


SUMMARY. As a reminder to investors the market as measured by the S&P 500 has had returns of 29% in 2019 and 14% or so so far this year. These sort for returns are not the norm vs historical standards in fact based on history market returns are normally 7-10% at best over long periods of time. We believe there maybe several reasons to account for returns being above the norm some tied to Federal Reserve policy via money printing others tied to favorable interest rates and yet others tied to government policy which created low taxation and regulation. The question is are these PERMANENT to sustain such returns and are there unintended consequences. There is a theory in investing called "reversion to the mean" where outsized price swings or returns up or down tend to normalize over time. With this in mind we believe there exists much hope & euphoria on economic growth in 2021 some tied to covid-19 waning some tied to increases in fiscal spending. We don't dispute there maybe be growth in 2021 (esp tied to covid-19 waning as per prior newsletters) the question will it be sustained & by what amount.


INVESTMENT IMPACT. Although we continue to be positioned for better economic growth in 2021 particularly in 1H21 we are growing concerned the potential for growth headwinds in late 2021 & beyond. As a result, we continued our additions to those areas (utilities & gold) that we believe may offer less correlation with the market in the event of a decline as well as some dividend yield alone the way. Further we increased cash levels as well with growth models now having equity exposures ex the defensive areas (utilities & gold) considerably below targeted levels as we head in 2021. We encourage clients to inquire further on our thinking in 2021. We are awaiting the finalization of the elections to draw final conclusions on growth for 2021 thus why we have not released our "Investment Framework" for 2021 or broad assumptions that help guide our design of model portfolios.


Our model portfolio performance has been updated on our website as of 11/30/20.


For more insights see our website and disclosures found there at BCA. The thoughts contained in this newsletters are intended lend insights into BCAs current & future thinking on changes to BCA model portfolios. They are not intended to be recommendations and should not be taken as such. As always contact us for further explanation of how these events can affect your finances. To unsubscribe from our newsletters & website please email us with "unsubscribe" in the subject.

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